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AN  INVESTOR'S  NOTES 


ON 


AMERICAN    RAILROADS 


JOHN   SWANN,  M.A.,  OXON. 

COUNSELLOR-AT-LAW  AND  SOMETIME   GENERAL  MANAGER  ALABAMA  GREAT 
SOUTHERN   RAILROAD 


SECOND  EDITION,  REVISED  AND  ENLARGED 


NEW  YORK  &  LONDON 

G.  P.  PUTNAM'S    SONS 

ftfyt  ^nicherbotker  ^rwsi 

^    l887 


COPYRIGHT   BY 

JOHN  SWANN 


Press  of 

G.  P.  PITNAM'S  SONS 
New  York 


PREFACE. 


A  GOOD  deal  has  of  late  years  been  written  by  experts 
touching  the  history,  growth  and  management  of  rail- 
ways, their  duties  to  the  State,  and  their  relation  to  the 
people.  Many  valuable  conclusions  have  been  arrived  at, 
and  much  technical  knowledge  has  been  made  accessible 
to  the  casual  reader.  In  the  excellent  and  well-known 
work  of  Mr.  Charles  Francis  Adams  Jr.  published  in 
1880,*  and  the  late  able  works  of  Prof.  Hadley  f  and  Mr. 
J.  F.  Hudson  J  published  in  1886,  historical,  adminis- 
trative and  political  aspects  of  the  subject  have  been 
handled  with  accurate  knowledge  and  in  attractive  form. 
But,  if  we  except  the  necessarily  cumbrous  works,  which 
deal  with  large  masses  of  figures  and  require  attentive 
study  for  their  profitable  interpretation,  the  interest  of 
the  investor,  as  such,  and  notably  that  of  the  European 
investor  in  American  railroad  securities,  seems  to  have 
been  overlooked  or  lightly  regarded. 

Possibly,  if  the  European  outlook  had  not  been  some- 
what stormy,  and  large  changes  in  the  conditions  affect- 
ing property  in  the  British  Empire  had  not  been  distinctly 
foreshadowed,  the  interest  of  the  investor,  as  such,  might 
have  rightly  been  considered  a  matter  of  small  immediate 
moment,  and  undeserving  special  consideration.  But  it 

*  "  Railroads,  their  Origin  and  Problems."     C.  F.  Adams  Jr. 
f  "  Railroad  Transportation."     Prof.  A.  T.  Hadley. 
j  "  The  Railways  and  the  Republic."    Jas.  F.  Hudson. 


IV  PREFACE. 

is  conceived  by  the  present  writer  that  very  large  changes 
in  European  investment  are  likely  to  occur  in  the  course 
of  the  next  few  years,  and  that  a  liberal  transfer  of  capi- 
tal will  be  made  from  European  to  American  securities. 
Experience  conclusively  shows  that,  in  the  past,  the 
casual  investor  has  given  but  slight  personal  attention  to 
the  choice  or  protection  of  his  investments  in  American 
railroads.  It  is  accordingly  thought  possible  that  a  few 
practical  observations  on  salient  points  in  the  situation 
may  be  acceptable  to  those  investors  who  have  neither 
time  nor  inclination  for  any  approach  to  exhaustive  in- 
vestigation of  the  subject. 

The  present  notes  are  confined  to  a  very  limited  aspect 
of  the  railroad  problem — viz.,  that  small  range  of  condi- 
tions which  affects  the  interest  of  the  investor,  as  such. 
Even  in  a  most  superficial  view  of  the  subject,  the  con- 
clusions of  experts  must  inevitably  be  utilized  as  data  for 
specific  inferences  relating  to  the  interest  of  an  investor. 
In  this  view,  many  conclusions  contained  in  the  valuable 
works  above  indicated  have  been  used  or  referred  to,  and 
the  writer's  obligations  to  their  authors  are  freely  ac- 
knowledged. 


CONTENTS. 


CHAPTER  PAGE 

I. — SPHERES  OF  INVESTMENT  i 
II. — FAIR  AND  FREE  TRADE  .         .         ...         .14 

III. — CONTROL 29 

IV. — COMBINATION 44 

V. — POOLS 49 

VI.— WATER 56 

VII. — PARALLEL  LINES 60 

VIII. — REORGANIZATION 64 

IX. — PROXIES    .  .        .        .        .        .        .70 

X. — FUNDING 74 

XI. — RECEIVERS'  CERTIFICATES         .         .         .         .81 

XII.— CORNERS 83 

XIII. — PUBLICITY 85 

XIV. — RAILROAD  COMMISSIONS    .         .         .         .  91 

XV. — VESTED  INTERESTS  AND  GRAZING  LANDS       .  no 

XVI. — STATE  CONTROL 124 

XVII. — GEOGRAPHICAL  DIRECTION  OF  RAILROADS      .  130 
-XVIII. — SOME  IMPORTANT  DECISIONS   ....  142 
XIX. — SOME    NOTES    ON    THE     INTER-STATE    COM- 
MERCE ACT 156 

XX.— THE  "ALIEN  LAND  ACT"                                 .  186 

APPENDIX        ..,,,,...  189 


. 


AN  INVESTOR'S  NOTES  ON  AMERICAN 
RAILROADS. 


CHAPTER  I. 

SPHERES   OF   INVESTMENT. 

SOME  fifteen  years  ago  it  was  held  by  the  writer's 
friends  and  by  a  large  section  of  English  society  that  the 
government  and  institutions  of  America  were  separated 
from  those  of  England  by  an  impassable  gulf.  Every  thing 
American  was  thought  to  be  more  or  less  ephemeral  and 
transitory,  because  unprotected  by  ancient  traditions, 
tending  to  the  growth  of  an  enlightened  conservatism. 
Rights  of  property  in  that  country  were  thought  by  many 
Englishmen  to  be  more  or  less  illusory,  and  the  perma- 
nence of  social  institutions  uncertain  and  untrustworthy. 

Concerning  English  institutions,  on  the  other  hand,  a 
different  impression  prevailed.  It  was  thought  that 
around  property  in  Great  Britain,  and  especially  around 
the  time-honoured  freehold,  there  stood  the  British  Con- 
stitution, firm  as  the  hills  which  stood  around  Jerusalem. 
A  man  who  seriously  compared  the  stability  of  property  in 
England  with  that  of  property  in  America  would  have 
been  considered  scarcely  fit  to  be  at  large.  But  since 
that  time  many  things  have  happened.  Entries  have 
been  made  on  England's  record  which  somewhat  alter 
the  relative  situation.  Such  words  as  "  Midlothian," 


2  SPHERES  OF  INVESTMENT. 

"  Kilmainham,"  "  National  League/'  "  Fundamental 
Law,"  "Home  Rule,"  " Three  acres  and  a  cow," 
"  Ransom,"  "  House  League,"  suggest  political  infer- 
ences which  fifteen  years  ago  were  never  dreamed  of. 
London  has  rioted,  and  Queen  Victoria  has  abdicated 
in  favour  of  Mr.  Parnell.  It  has  been  made  clear  that 
the  equal  enforcement  of  established  law  and  the  pro- 
tection of  existing  rights  are  no  longer  regarded  as  ab- 
solutely essential  to  British  freedom  and  prosperity ; 
but  are  subject  to  modification  or  suspension,  for  the 
mere  purposes  of  party  warfare  or  personal  popularity. 

Now  the  rights  of  property  have  been  ascertained  and 
defined  by  a  long  line  of  thoughtful  precedents  and  well- 
reasoned  decisions.  The  immense  value  of  certainty  in 
respect  of  the  rights  of  property,  as  a  factor  in  credit  and 
commerce,  can  scarcely  be  over-rated.  Upon  this  cer- 
tainty, as  upon  a  sure  foundation,  was  gradually  built  up 
the  superstructure  of  England's  commercial  supremacy. 
It  is  true  that  the  present  age  is  apt  to  be  resentful  of  au- 
thority. But  the  fathers  of  English  jurisprudence,  though 
certainly  not  all  Solomons,  were  not  invariably  simple- 
tons. In  the  aggregate  of  their  decisions  may  be  found 
a  comprehensive  chart,  which  thoughtfully  and  critically 
defines  the  rights  of  a  free  people  in  the  property  which 
they  own  and  the  remedies  incident  thereto.  To  the 
casual  observer  it  seems  somewhat  rash  to  make  these 
solemn  and  enlightened  sanctions  subject  to  the  impulses 
of  the  restless  or  lawless  members  of  the  community.  In 
a  case  where  such  broad  and  vital  interests  are  concerned, 
is  it  worth  while  to  tear  up  the  chart  which  marks  with 
precision  dangerous  reefs  and  safe  channels,*and  to  trust  to 
the  mere  passion  of  the  hour  for  a  safe  voyage  ?  This 
chart  which  law  has  laid  down  is  cold-blooded  and  criti- 


SPHERES  OF  INVESTMENT.  3 

cal,  if  you  like ;  but  for  that  very  reason  it  is  well-con- 
sidered, steadfast,  trustworthy,  while  the  impulses  of 
popular  emotion  are  capricious  and  short-sighted.  To 
govern  by  reference  to  the  passions,  instead  of  the 
understanding,  is  something  like  steering  an  ocean 
steamship  by  the  thermometer  instead  of  the  compass. 

The  American  side  of  the  question  is  also  better 
understood.  Sir  Henry  S.  Maine  has  written  ; — and  many 
candid  readers  of  his  able  essays  will  hesitate  before 
they  decide  that  the  English  Constitution  is  impregna- 
ble, and  that  the  American  Constitution  is  all  moon- 
shine. As  things  now  stand,  some  considerations  oc- 
cur which  would  seem  to  render  appropriate  to  the 
present  time  a  budget  of  suggestive  notes  on  the  sub- 
ject of  investment,  provided  they  should  make  no  at- 
tempt at  exhaustive  treatment  of  any  thing,  nor  tres- 
pass unduly  on  the  time  and  patience  of  a  busy  or 
pre-occupied  investor. 

However  great  and  noble  may  be  the  advantages  which 
are  likely  to  accrue  to  the  British  Empire  from  the  onward 
march  of  democracy,  it  must  be  admitted  that  the  finan- 
cial outlook,  if  not  in  the  last  degree  depressing,  is  at 
least  stormy  and  suggestive  of  grave  uncertainties.  Of 
course  critical  periods  occur  during  which  political  talk, 
involving  [e.  g.~\  the  integrity  of  an  empire,  the  rights  of 
property,  or  the  tenure  of  office  by  particular  men,  is 
exclusively  in  order.  But,  as  there  is  a  time  for  every 
thing  which  affects  the  problem  of  human  welfare,  occasions 
recur  when  finance  of  the  humbler  type  and  the  econom- 
ical investment  of  individual  fortunes  may  deserve  pass- 
ing consideration.  The  material  prosperity  of  those  classes 
in  the  community,  which  by  reason  of  thrift  or  inheritance 
possess  accumulated  wealth,  must  sooner  or  later  claim  a 


4  SPHERES  OF  INVESTMENT. 

hearing.  Even  the  Irish  land  question  is  thought  by 
some  observers  to  be  tinged  with  the  hue  of  gold,  as 
well  as  of  blood.  Whatever  solution  of  this  urgent  ques- 
tion may  be  desired  by  Mr.  Gladstone,  it  is  probable  that 
property  invested  in  Ireland  under  government  pledges 
will  be  to  some  extent  protected.  It  is  a  matter  of 
deep  regret  that  money  when  once  released  from  Ire- 
land will  not  generally  seek  reinvestment  there.  But,  as  a 
financial  fact,  it  is  improbable  that  it  will  do  so,  except 
under  very  special  conditions  and  subject  to  somewhat 
narrow  limits.  From  the  investor's  point  of  view,  security 
of  principal  and  peaceful  collection  of  interest  are  at  least 
as  important  as  the  prospect  of  liberal  profits.  As  a  mat- 
ter of  business,  wholly  apart  from  political  or  party  con- 
siderations, prudent  investors  reasonably  shrink  from  lock- 
ing up  their  money  in  any  country  in  which  the  law  is  not 
supreme,  or  in  which  the  mechanism  necessary  for  the 
enforcement  of  existing  rights  is  substantially  impaired 
or  indefinitely  suspended.  A  reasonably  sound  railroad 
bond  may  furnish,  at  most,  four  or  five  per  cent,  on  in- 
vested capital.  But,  if  at  the  end  of  each  half-year  the 
holder  can  collect  his  coupons  peacefully  and  punctually, 
this  result  is  on  the  whole  fairly  satisfactory.  It  is,  at  all 
events,  a  better  investment  than  the  purchase  of  land 
which  the  owner  or  mortgagee  is  afraid  to  occupy  or 
visit,  or  the  conduct  of  a  business  to  which  the  system 
of  boycotting  may  be  any  day  applied.  The  economical 
prospects  of  Ireland  practically  divorced  from  England 
may  be  satisfactory  to  Mr.  Gladstone,  and  yet  far  from 
reassuring  to  the  casual  investor  in  Irish  securities. 
The  point  of  view  of  the  former  is  political,  and  turns 
on  a  large  and  popular  confidence  in  "  flesh  and  blood." 
The  point  of  view  of  the  latter  is  economical,  and 


SPHERES  OF  INVESTMENT.  5 

turns  on  a  paltry  and  unpopular  estimate  of  pounds 
shillings  and  pence.  A  political  blunder  might  be 
lightly  survived  by  Mr.  Gladstone,  but  an  economical 
mistake  might  be  a  serious  calamity  to  an  investor  of 
moderate  means.  If  the  Nationalist  party  are  disinclined 
to  protect  rights  in  land,  and  are  not  particularly  cordial 
towards  their  best  local  industries,  such  as  the  linen  manu- 
facture, an  intending  investor  naturally  distrusts  the  law- 
abiding  instincts  of  the  new  regime.  Not  even  Mr.  Glad- 
stone's eloquence  can  persuade  him  that  capricious  legis- 
lation can  make  rich  and  strong  a  people  endowed  with  a 
poor  soil,  if  such  legislation  encourages  thriftless  habits 
or  lawless  instincts.  The  sources  of  national  wealth  lie 
deeper.  The  severance  of  the  last  link  which  binds 
Ireland  to  England  is  a  good  phrase,  and  has  a  fine  free 
ring  about  it.  No  doubt  it  tickles  the  ear  of  the  Nation- 
alist, who  has  not  been  overthrifty  in  the  past  and  would 
like  to  shirk  work  in  the  future.  But  the  colder-blooded 
business  man  will  note  that,  when  this  last  link  is  severed, 
capital  and  credit  will  go  down  in  the  general  crash.  He 
will  be  apt  to  reflect  that,  while  absolute  independence  is 
intrinsically  a  noble  thing,  its  permanent  beauty  is  largely 
dependent  on  environment.  Of  course  freedom  attended 
by  prosperity  commands  the  admiration  of  the  civilized 
world.  But  freedom  associated  with  famine  makes  at 
best  a  gloomy  picture.  A  particular  form  of  government 
is  like  the  bubble  on  the  champagne.  It  is  the  vintage 
that  determines  the  bubble,  and  not  the  bubble  the 
vintage.  The  governing  body  will  represent,  with  some 
rough  approximation  to  accuracy,  the  character  and 
qualities  of  the  constituencies  which  confer  power.  If 
constituencies  exhibit  characteristics  which  fail  to  inspire 
faith  in  their  just,  temperate,  and  law-abiding  instincts: 


O  SPHERES  OF  INVESTMENT. 

the  confidence  of  the  investor  will  be  proportionately 
discounted.  "  If,"  he  will  ask,  "  they  do  these  things 
in  a  green  tree,  what  shall  be  done  in  the  dry  ?  "  He  will 
regulate  his  investments  accordingly. 

Then,  again,  as  regards  the  European  outlook,  it  may 
well  be  that  a  firm  foreign  policy  will  eventually  secure 
peace.  But,  if  the  past  be  any  guide  to  the  future,  it  is 
impossible  to  dismiss  all  apprehension  under  this  head. 
It  is  enough  for  the  present  purpose  to  indicate  that  a 
European  war  is,  in  the  last  degree,  unfavourable  to  confi- 
dent and  liberal  investment  in  European  securities,  outside 
the  British  Empire. 

As  regards  English  land  and  the  industries  directly  ap- 
purtenant thereto,  it  would  of  course  be  absurd  to  dog- 
matize. But  it  is  still  worth  noting  that — next  to  serious 
calamities  involving  wholesale  destruction  of  material  as- 
sets— nothing  tends  so  directly  to  depress  property,  and 
to  chill  legitimate  investment  in  its  development,  as  un- 
certainty affecting  existing  rights.  England's  well-wishers 
cordially  hope  that  English  land  may  recover  its  prestige 
and  profit.  But  would  any  prudent  lawyer,  in  the  face  of 
,  State  socialism  and  foreign  competition,  recommend  his 
clients  as  landowners  to  expend  their  means  lavishly  on 
the  development  of  their  freeholds  ?  Would  he  not 
rather  advise  them  to  invest  their  capital  in  more  re- 
munerative and  more  readily  convertible  securities,  and 
to  become  tenants  of  whatever  land  they  require  ?  If 
there  be  any  truth  in  this  view,  it  is  probable  that,  in  the 
course  of  the  next  few  years,  we  shall  see  large  accumula- 
tions of  unemployed  money  seeking  such  investment  as 
may  combine  reasonable  security  with  fairly  remunerative 
interest.  The  question  arises,  where  is  a  suitable  sphere 
of  investment  to  be  found  ? 


SPHERES  OF  INVESTMENT.  J 

The  feasibility  of  judicious  investment  in  America  has 
of  late  been  the  subject  of  warm  discussion  in  European 
circles ;  and  grave  issues  have  been  raised  by  the  parti- 
sans of  incompatible  theories.  There  are  many  who  think 
that,  whenever  Europe  invests  capital  in  America,  it  will 
of  necessity  follow  that  America  will  make  the  profit,  and 
that  Europe  will  have  to  be  content  with  the  experience. 
There  are  others  who  think  that  the  existing  Constitu- 
tion of  America  affords  a  substantial  security  for  vested 
interests.  They  hold  that  written  provisions,  which 
[amongst  other  things]  forbid  the  impairment  of  a  con- 
tract and  are  subject  to  interpretation  by  the  Supreme 
Court  of  the  United  States,  are  more  trustworthy  safe- 
guards to  vested  interests,  than  the  personal  discretion  of 
any  advanced  reformer.  They  would  rather  risk  their 
money  on  provisions,  which  cannot  be  repealed  except  by 
a  very  deliberate  verdict  of  a  whole  nation,  than  on  im- 
pulses referable  to  the  personal  career  of  any  individual 
statesman,  who  may  have  acquired  the  power  of  over-rid- 
ing— but  does  not,  in  the  last  resort,  adequately  repre- 
sent— the  convictions  of  educated  people.  They  consider 
that,  as  it  is  in  times  of  internal  peace  that  prosperity 
goes  forward  "  by  leaps  and  bounds,"  invested  money  has, 
on  the  whole,  a  better  prospect  in  America  than  else- 
where. It  is  not  the  purpose  of  these  notes  to  determine 
the  comparative  merits  of  such  conflicting  views.  Their 
purpose  is  simply  to  submit  some  conclusions  gathered 
from  many  years  of  residence  in  the  Country,  and  many 
years  of  intimate  acquaintance  with  the  inside  history  and 
conditions  of  current,  and  especially  railroad,  investment. 
By  persons  well  informed  on  this  subject  such  notes 
may  rightly  be  regarded  as  ancient  history  expressed  in 
an  unattractive  form.  But  all  are  not  experts  in  foreign 


8  SPHERES  OF  INVESTMENT. 

business.  There  remain  the  uninitiated,  who — by  lack  of 
time  or  the  pressure  of  other  engagements — have  been 
constrained  to  invest  in  American  securities,  without 
forming  any  critical  judgment  of  their  own  on  any 
specific  sphere  of  investment.  To  such  the  present 
notes  may  perhaps  furnish  suggestions  tending  to  guide 
the  judgment  in  the  protection  of  existing,  and  the  choice 
of  future,  investments.  Roughly  stated,  the  vital  ques- 
tions for  a  European  investor  in  American  securities  are 
something  like  the  following :  Are  the  losses  and  disasters 
of  the  past  properly  referable  to  conditions  inherent  in 
American  securities,  as  such,  or  have  they  resulted  in 
great  part  from  exceptional  misfortune,  or  the  contribu- 
tory negligence  of  the  investor;  and,  if  so,  to  what  "ex- 
tent ?  Was  it  or  was  it  not,  in  the  past,  competent  to 
investors  to  discern  the  signs  of  the  times,  with  a  nearer 
approach  to  correctness  than  they  ever  in  fact  achieved  ? 
Is  it  competent  to  them  in  the  future,  by  the  observance 
of  a  few  simple  indications,  to  avoid  the  graver  class  of 
•mistake  ?  Obviously,  life  is  not  long  enough  for  an 
exhaustive  examination  of  every  proposed  investment. 
But,  if  serious  error  is  to  be  avoided,  are  there  any  land- 
marks intelligible  to  the  casual  observer  which  may  suffice 
—if  not  to  indicate  reasonably  safe  routes — to  warn  the 
traveller  against  dangerous  pitfalls  ?  To  the  mind  of  the 
seafarer  the  lighthouse  is  not  as  exhaustive  as  an  ocean 
chart.  But  nevertheless  it  fulfils  a  useful  purpose.  It 
appeals  to  the  eye  of  the  unwary,  and  marks  the  exist- 
ence of  a  dangerous  reef,  though  it  makes  no  pretensions 
to  map  out  safe  channels.  It  seems  to  the  writer  that  the 
chance  of  doing  something  in  this  direction  might  justify 
a  modest  effort.  In  this  view  of  the  subject,  the  scope  of 
the  present  notes  is  strictly  limited,  and  their  object  is 


SPHERES  OF  INVESTMENT.  9 

the  reverse  of  ambitious.  An  endeavour  has  been  made  to 
subserve  the  convenience  of  the  reader  by  the  addition  of 
a  comprehensive  index. 

The  total  capital  invested  in  American  railroads  repre- 
sents an  enormous  sum.  Its  precise  dimensions  cannot 
be  determined  with  absolute  exactness,  because  there 
exists  a  wide  difference,  in  the  first  place,  between  the 
amount  nominally  and  the  amount  actually  expended  in 
construction  ;  and,  in  the  second,  between  the  nominal 
value  of  securities  and  the  price  actually  paid  for  them  by 
their  holders.  But,  allowing  a  wide  margin  for  elements 
of  uncertainty,  it  may  be  taken  as  fairly  established 
that  the  total  investment  approximates  to  thirteen  hun- 
dred millions  sterling,  and  that  of  this  the  larger  part  is 
foreign.  I^OC^OOO^oO 

In  days  when  it  is  the  custom  for' financiers  to  think  in 
millions,  it  can  scarcely  be  matter  for  surprise  to  find  in- 
vestments of  enormous  amount  treated  in  a  somewhat  airy 
fashion.  But,  if  the  true  significance  of  seven  or  eight  hun- 
dred millions  sterling  be  thoroughly  grasped,  it  will  be  seen 
that  a  sum  of  this  magnitude  is  a  feature  of  real  importance 
in  the  commercial  and  social  history  of  the  day.  It  forms 
an  appreciable  element  in  any  exhaustive  estimate  of  na- 
tional wealth.  It  represents  the  sinews  of  a  vast  aggre- 
gate of  productive  enterprise,  and  the  "  hoarded  self- 
denial  "  of  tens  of  thousands  of  investors.  Now  this 
huge  investment  is  made  up  of  securities  varying  widely 
in  character  and  quality.  Some  of  them  are  sound  and 
productive ;  but  very  many  possess  a  modest  present  and 
a  doubtful  future  value.  During  periods  of  so-called  "  in- 
flation," the  constructive  impulse  far  out-ran  the  indications 
of  demand.  The  cart  was  put  before  the  horse,  and  rail- 
roads were  built  in  advance  of  any  real  need  of  them,  by 


10  SPHERES  OF  INVESTMENT. 

means  of  bonds  placed  in  Europe.  The  securities  issued  by 
many  of  these  railroads  are  not  sufficiently  sound  or  attrac- 
tive to  be  absorbed  by  American  investors.  That  is  a  point 
of  some  importance,  and  very  pertinent  to  the  matter  in 
hand,  because  the  money  invested  in  these  securities  must, 
as  between  Europe  and  America,  be  considered  to  be 
finally  sunk.  It  is  scarcely  necessary  to  point  out  that  in- 
vestments, which  are  permanently  located  on  American 
soil  but  which  America  will  not  re-purchase  from  Europe, 
are  beyond  all  others  the  most  susceptible  to  the  influ- 
ences of  rash  legislation.  It  is  true  that  many  railroad 
loans  negotiated  in  Europe  on  the  security  of  faith  rather 
than  of  works  have,  by  reason  of  the  rapid  settlement 
and  the  extraordinary  internal  resources  of  particular  dis- 
tricts, grown  steadily  in  value.  But  it  must  not  be  for- 
gotten that  conditions  of  a  specially  favourable  character 
attended  this  growth.  The  increment  of  value — which  the 
constructors  of  a  railroad  must  be  taken  to  have  relied  on 
as  an  equivalent  for  extraordinary  risks — was  allowed  to 
enure  in  its  integrity  to  the  benefit  of  the  constructing 
companies.  No  legislation  was  proposed  tending  to  re- 
duce the  earning  power  of  a  railroad,  or  to  limit  its  pos- 
sible dividends.  On  the  contrary,  the  elements  of  growth 
and  of  recuperative  power  were  fostered  by  an  almost 
absolute  freedom  from  government  interference. 

It  is  assumed  then  by  the  present  writer  that  European 
investors  have  a  large  stake  in  America  to  protect  ;  and 
that,  owing  to  political  and  social  complications  in  the 
European  outlook,  a  good  deal  of  capital,  which  is  timid 
and  sensitive  to  the  action  of  violent  influences,  will 
probably  seek  investment  in  this  Country  in  the  course  of 
the  next  ten  years.  If  there  be  truth  in  this  view,  there 
would  seem  to  be  some  show  of  reason  in  selecting  the 


SPHERES  OF  INVESTMENT.  II 

present  time  for  a  brief  reconsideration  of  some  salient 
points  in  the  railroad  situation.  To  invest  such  brief  re- 
consideration with  a  modest  value,  it  is  by  no  means 
necessary  that  the  points  to  which  attention  is  directed 
should  be  new  or  original.  It  is  exactly  because  well- 
worn  maxims  have  become  too  familiar  that  they  are  so 
often  forgotten  or  overlooked.  Familiarity  has  bred  con- 
tempt, and  thus  useful  indications  are  very  often  dis- 
missed as  hopelessly  stale.  But  a  truism  does  not  cease 
to  be  true  because  it  is  trite. 

In  making  any  forecast  about  the  future,  it  is  wise — if 
not  indispensable — to  remember  ancient  landmarks,  and 
from  time  "to  time  to  make  a  comparative  survey  of  the 
ground,  taking  note  of  changed  conditions  and  new  ele- 
ments in  the  situation.  The  environment  of  many  rail- 
roads is  materially  changed  since  the  European  investor 
first  put  his  money  into  them.  There  are  available  to-day 
data  relating  to  the  settlement  and  resources  of  many  dis- 
tricts, which  some  years  ago  were  obscure  or  unascertained. 
To-day  there  has  grown  up  a  rank  crop  of  legislation 
affecting  railroad  property,  which  formerly  was  never 
dreamed  of.  State  and  Federal  courts  have  made  deci- 
sions on  various  branches  of  the  subject  which  were  not 
anticipated.  Popular  sentiment  has  undergone  great 
change ;  and  the  drift  of  feeling,  in  comparatively  prosper- 
ous days,  is  less  cordial  to  the  investor  than  in  days  of 
extreme  adversity,  when  ready  money  was  scarce  and  its 
possession  was  regarded  as  a  considerable  merit  in  the 
possessor.  There  is,  in  short,  abundant  room  for  vigil- 
ance and  a  large  sphere  for  judgment  and  discretion.  If 
that  be  so,  the  lessons  of  the  past  may  perhaps  to  some 
extent,  be  utilized  for  the  guidance  of  the  future ;  and  it 
does  not  follow  that  nothing  is  valuable  which  is  not  fresh. 


12  SPHERES  OF  INVESTMENT. 

The  investor  wants  rather  what  is  true  than  what  is  new. 
A  substantially  correct  statement  of  data,  which  are  to- 
day available  for  his  purposes,  is  likely  to  be  more  useful 
to  him  than  original  theories  or  ingenious  prophecy.  Ac- 
cordingly, for  the  sake  of  convenience,  it  is  proposed  to 
jot  down,  under  separate  headings,  a  few  notes  on  several 
points  in  the  railroad  situation,  which  appear  to  have  been 
forgotten  or  overlooked,  and  which,  under  the  rapidly 
changing  conditions  of  the  present  age,  may  possibly  give 
an  uninitiated  enquirer  some  useful  hints. 

Let  us  suppose  that  we  have  to  deal  with  an  intending 
investor  of  moderate  means,  who  has  very  slight  acquaint- 
ance with  the  conditions  of  the  American  market. 
Knowledge  of  details  and  inferences  derivable  therefrom, 
which  are  ancient  history  to  the  expert,  may  be  to  him 
obscure  or  unknown.  It  is  proposed  to  make  some  notes 
on  the  following  subjects  in  their  order: 

1.  Spheres  of  Investment. 

2.  Fair  and  Free  Trade. 

3.  Control.. 

4.  Combination. 

5.  Pools. 

6.  Water. 

7.  Parallel  Lines. 

8.  Reorganization. 

9.  Proxies. 

10.  Funding. 

11.  Receivers' Certificates. 

12.  Corners. 

13.  Publicity. 

14.  Railroad  Commissions. 

15.  Vested  Interests. 

1 6.  State  Control, 


SPHERES  OF  INVESTMENT.  13 

17.  Geographical  Direction  of  Railroads. 

1 8.  Some  Important  Decisions. 

19.  Short  Appendix.     Report  of  Railroad  Commissions, 

etc. 

In  any  intelligent  endeavour  to  appraise  at  its  true  value 
the  merits  of  any  particular  sphere  of  investment,  the 
institutions  of  any  given  country  are  at  least  as  important 
as  its  intrinsic  resources.  If  the  habits  of  the  people,  its 
social  machinery,  legislative  procedure  and  jurisprudence 
be  unsettled  or  unsatisfactory,  the  value  of  its  internal 
resources  is,  from  the  investor's  point  of  view,  indefinitely 
depreciated  and  discounted.  If  there  is  much  that  is 
defective  in  American  institutions,  there  is  also  much 
that  is  re-assuring.  Of  course,  divergences  of  opinion  on 
so  large  a  subject  must,  of  necessity,  be  broad  and  fre- 
quent. But  there  are  data  easily  accessible  to  everybody 
which  may  be  profitably  used  in  the  formation  of  an 
approximately  correct  judgment.  The  following  ob- 
servations are  addressed  to  this  view  of  the  subject. 


CHAPTER  II. 

FAIR  AND   FREE  TRADE. 

A  GOOD  deal  has  of  late  years  been  said  by  the  uncom- 
promising champions  of  free  trade  about  the  gross  ab- 
surdity of  the  rejection  of  their  doctrines  by  the  American 
people.  No  doubt,  on  both  sides  of  this  question,  many 
good  arguments  might  be  urged,  which  it  is  not  the  pur- 
pose of  the  present  notes  to  set  forth.  It  may  however 
be  said  shortly  that,  in  the  writer's  opinion,  it  has  been 
a  substantial  advantage  to  England  that  America  has  not 
entered  into  commercial  competition  with  her  on  the 
basis  of  free  trade.  As  a  matter  of  course,  every  nation 
which  competes  in  the  great  commercial  race  is  handi- 
capped by  a  variety  of  conditions,  which  the  political 
economist  can  formulate  with  some  approach  to  correct- 
ness. Notable  among  these  conditions  are  internal 
resources,  area,  soil  and  climate,  the  energy  of  the 
people,  their  law-abiding  instincts,  and  their  willingness 
to  give  to  superior  skill  and  energy  the  compensation  to 
which  it  is  entitled.  Whatever  superiority  England  may 
have  possessed  in  past  times,  in  respect  of  the  character 
and  habits  of  its  working  population,  it  can  scarcely  be 
stated — with  any  semblance  of  confidence — that  this 
superiority  will  be  permanent.  In  past  times  the  classes 
in  England  who  excelled  in  skill  and  endurance  produced 
a  larger  and  more  valuable  output  in  their  respective 
spheres  of  industry  than  any  other  people  in  the  world. 

14 


FAIR  AND  FREE    TRADE.  1$ 

It  was  precisely  because  they  did  so  that  they  were  able 
to  undersell  foreign  competitors  in  foreign  markets,  and 
especially  in  newly  discovered  spheres  of  enterprise.  The 
policy  of  free  trade,  as  enunciated  by  Messrs.  Cobden  and 
Bright,  was  at  all  events  robust  in  fibre  and  liberal  in  as- 
piration. On  their  theory,  it  was  to  be  competent  to  the 
consumer  to  buy  whatever  he  required  in  the  cheapest 
market.  Raw  materials  for  specific  industries  were  to 
come  to  him  untaxed,  and  the  necessaries  of  life,  which 
he  consumed  while  converting  raw  materials  into  finished 
products,  were  to  be  relatively  cheap.  But  the  modern 
Liberal — or  shall  we  say  Socialist  ? — school  disregards  the 
doctrines  of  free  trade  which  favour  free  contract  and 
promote  self-help.  Contribution  in  the  form  of  school 
fees  was  an  important  element  in  the  arguments  offered 
in  support  of  compulsory  education.  Offer  the  people 
free  education,  and  you  at  once  diminish  the  value,  in 
their  eyes,  of  the  commodity  supplied,  and  invite  them 
to  be  wholly  dependent,  instead  of  partially  self-support- 
ing. Offer  the  poorer  classes  of  the  people  a  subsidy 
from  the  State  as  a  means  of  livelihood,  instead  of 
stimulating  the  thrift  and  responsibility  underlying  the 
duties  of  good  citizenship,  and  you  sap  the  morals  arid 
weaken  the  backbone  of  that  very  labouring  class  which  it 
is  the  delight  of  the  demagogue  to  flatter  and  mislead. 
If  the  lessons  derivable  from  many  years'  experience  in 
the  imperfect  administration  of  a  defective  poor-law  have 
failed  to  convince  the  Socialist  school  that  its  champions 
are  preparing  the  downfall  of  England's  commercial 
supremacy,  "  neither  will  they  be  persuaded  though  one 
rose  from  the  dead."  Limit  by  statutory  enactment  the 
hours  of  labour,  and  you  reduce,  at  one  stroke,  the  pro- 
ductive capacity  of  a  community  w  nch  is  probably, 


l6  FAIR  AND  FREE    TRADE. 

taken  as  a  whole,  the  most  efficient  producer  in  the 
world.  And  what  do  you  get  in  return  for  this  gratuitous 
legislative  interference  ?  Certainly  not  an  increase  in  the 
national  wealth.  For  the  German  and  Belgian  artisan 
will  work  longer  hours  for  less  wages ;  and,  if  so,  the 
capitalist  who  employs  him  can,  with  a  fair  profit,  take 
up  contracts  which  the  English  employer  of  labour  could 
not  safely  touch.  You  certainly  do  not  benefit  the 
skilled  artisan  of  the  highest  class.  It  is  his  ambition  to 
utilize  his  superior  physique,  his  great  power  of  endur- 
ance, and  the  valuable  skill  which  enables  him  to  produce 
more  rapidly  as  well  as  more  effectually  than  the  aver- 
age workman,  for  the  advancement  in  life  of  himself  and 
his  family.  To  limit  the  hours  of  labour  is  to  level  him 
down  against  his  will. 

It  is  indeed  said  that,  by  authoritatively  restricting  the 
hours  devoted  to  production,  you  will  improve  the  happi- 
ness of  the  people  and  their  physical  and  material  welfare. 
Nobody  doubts  that,  in  a  certain  limited  sense,  less  work 
and  more  play  is  reasonably  desired  by  every  working  bee 
in  the  great  national  hive.  The  Saturday  half-holiday, 
and  such  additional  periods  of  rest  and  refreshment  as 
may  be  voluntarily  agreed  upon  between  the  employer 
and  employed,  are  doubtless  tonic  and  wholesome  ar- 
rangements. But  is  it  quite  clear  that  legislative  restric- 
tion of  the  hours  of  labour  will,  in  the  long  run,  tend  to 
a  beneficial  result,  without  involving  a  serious  set-off  in 
point  of  disadvantage? 

Suppose  the  limitation  of  production  by  statutory 
enactment  causes  the  withdrawal  of  capital  from  current 
enterprise,  and  the  transfer  of  valuable  contracts  from 
English  to  foreign  artisans.  You  will  have  compelled  an 
industrious  community  to  work  below  its  maximum 


FAIR  AND  FREE    TRADE.  1 7 

productive  power;  and  you  will  practically  transfer,  by 
legislative  enactment,  a  large  portion  of  the  work,  which 
it  would  gladly  have  performed,  to  other  producing 
communities  in  which  supply  and  demand  are  permitted 
to  take  care  of  themselves.  You  will  have  taught  a  self- 
reliant  community  to  look  for  its  prosperity  to  the  State, 
instead  of  to  its  own  unassisted  energy  and  skill.  Against 
the  improved  happiness,  which  your  State  socialism  con- 
fers on  its  nurselings,  you  must  set  off  the  diminution  of 
vigour  which  arises  from  dependence.  If  the  survival 
of  the  fittest — subject  to  certain  reasonable  and  humane 
limitations — be  the  law  of  societies  and  nations,  the  least 
governed  is,  in  the  long  run,  the  most  likely  to  survive. 
Whom  then  do  you  benefit  by  your  restrictive  legisla- 
tion ?  Only  the  demagogue,  who  hopes  to  attain  office 
by  the  votes  of  the  ignorant  whom  he  has  misled,  and  the 
officers  of  his  pet  organizations,  who  will  be  paid  liberal 
salaries  for  drilling  ignorant  voters  into  the  acceptance  of 
untenable  doctrines.  Neither  history  nor  analogy  affords 
sufficient  ground  for  believing  that  the  temporary  protec- 
tion of  specific  industries  tends  to  demoralize  or  pauperize 
a  people  in  the  same  sense  or  to  the  same  extent  as  State 
socialism.  It  is  not  denied  by  the  advocates  of  protection 
in  this  country  that  the  right  of  the  consumer  to  buy  what 
he  needs  in  the  cheapest  market  is  sustained  by  the  gen- 
eral tenour  of  free  institutions.  But  they  argue  that  other 
considerations  must  be  taken  into  account.  These  may 
be  briefly  summarized  as  follows  : 

I.  The  statesman  who  desires  the  welfare  of  the  country 
for  which  he  legislates  must  have  regard  to  the  America, 
not  exclusively  of  to-day  or  to-morrow,  but  to  the  America 
of  twenty-five,  fifty,  one  hundred  years  hence.  The  inter- 
national competition  for  the  commercial  supremacy  of  the 


1 8  FAIR  AND  FREE   TRADE. 

world  is  not  a  short  race,  but  a  very  long  one.  In  such  a 
race  the  competitors  are  all  handicapped  ;  and  weight  will 
tell  every  yard  of  the  way  from  the  start  to  the  finish. 

2.  If  that  be  so,  it  is  prudent  to  consider  what  weight 
America  has  to  carry  in  the  race,  as  compared  with  other 
competitors.  The  answer  popularly  given  to  this  question 
is  that  she  has  several  points  in  her  favour — economical, 
political,  and  social. 

(a.)  Economical. — She  possesses  immense  territorial  area 
and  great  varieties  of  climate,  which  may  hereafter  enable 
her  to  compete  with  foreign  countries  in  many — not  to 
say  most — of  the  staple  articles  of  commerce.  For  ex- 
ample :  If  her  cotton  product  were  worked  up  on  or  near 
the  ground  where  it  is  raised,  great  economies  in  transpor- 
tation and  handling  of  raw  materials  might  be  effected. 
If  her  iron  industry  (rolling,  nail,  hardware  mills  etc.) 
were  prosecuted  on  the  ground  where  the  coal  and  the 
iron  lie  close  together,  a  similar  great  saving  would  result. 
If  her  potteries  were  established  in  the  neighbourhood  of 
her  great  mines  of  kaolin  and  china-clay,  like  economical 
benefits  would  be  derived  therefrom.  With  advantages 
of  this  kind  at  the  outset,  the  gradual  influx  of  capital, 
the  gradual  importation  of  highly  educated  or  skilled  arti- 
sans, and  the  gradual  training  of  her  own  people  in  special 
industrial  schools  will  give  her  a  fair  chance  of  competing 
with  the  world  within  a  reasonable  period  of  some  (say) 
twenty-five  years,  and  possibly  a  good  deal  earlier. 

(b)  Political— America,  has  no  foreign  policy.  Its  ab- 
sence is  a  great  saving  to  the  National  Exchequer.  She 
is  free  from  the  necessity  of  maintaining  great  armaments, 
which  make  heavy  calls  on  the  vigourous  manhood  of  a 
nation,  as  well  as  on  its  pecuniary  resources.  For  the 
successful  development  of  industrial  enterprise,  freedom 


FAIR  AND  FREE    TRADE.  1$ 

from  foreign  complication  is  an  eminently  favourable  con- 
dition. There  is  nothing  to  distract  her  attention  from 
the  development  of  her  internal  resources.  From  the  in- 
vestor's point  of  view,  in  quietness  and  confidence  is 
strength.  Sir  Henry  S.  Maine  has  indicated,  in  his  recent 
admirable  essays,*  the  vast  difficulties  which  attend  gov- 
ernment by  the  multitude.  So  strongly  is  a  kindred  opin- 
ion held  by  a  large  section  of  the  keenest  observers  in 
America,  that  some  States  have  exchanged  annual  for  bi- 
ennial sessions  of  their  Legislatures.  The  result  has 
been  eminently  satisfactory.  As  long  as  a  Legislature  is 
in  session,  it  is  impossible  to  foresee  what  tinkering  with 
property  will  be  devised.  Investors  are  hushed  and  afraid, 
and  active  business  is  chilled.  If  drastic  legislation  against 
property  is  proposed,  capital  will  inevitably  flee  away.  In 
these  States  the  general  desire  is  that  things  of  no  particu- 
lar moment  may  exhaust  the  session.  When  an  adjourn- 
ment for  two  years  is  announced,  everybody  rejoices  and 
settles  down  to  business.  This  feeling  involves  no  dis- 
respect on  the  part  of  the  people  for  their  chosen  repre- 
sentatives. They  may  be  the  best  of  men.  But  thirst  for 
"  making  a  record  "  and  proposing  violent  measures  is 
felt  to  be  fatal  to  prosperity.  The  maiden  speech  of 
a  thoroughly  Radical  orator  may  be  the  knell  of  a  new 
railroad,  coal  mine,  cotton  mill,  iron  furnace,  municipal 
loan,  or  the  like.  The  country  wants  repose  and  time  to 
develope  its  latent  wealth.  The  restless  demagogue  is  its 
very  worst  enemy.  The  substitution  of  biennial  for 
annual  sessions  is  more  significant  than  pages  of  didactic 
exposition.  It  is  a  great  example  of  the  political  sagacity 
of  the  American  people  ;  and  it  is  immensely  reassuring 
to  the  investor. 

*  "  Popular  Government,"  Sir  Henry  S.  Maine. 


2O  FAIR  AND  FREE    TRADE. 

(c)  Social. — Although  no  country  can,  in  this  century, 
count  on  escaping  the  pest  of  Communism,  America's 
power  of  resistance  is  to-day  at  least  as  high  as  that  of  any 
other  country.  A  very  substantial  proportion  of  her  citi- 
zens owns  a  little  property  in  one  form  or  another ;  and 
even  a  very  limited  amount  of  property  suffices  to  bring  the 
owner  into  line  with  his  law-abiding  fellow-citizens,  as 
against  the  Socialist  or  the  transgressor  of  law.  Expe- 
rience shows  that  the  man  who  has  the  grit  to  make 
money  has  generally  the  grit  to  protect  it.  In  a  riot  or  a 
fight  the  owner  of  a  little  homestead  or  store  is  worth  ten 
loafers.  He  has  more  nerve,  a  stiffer  backbone,  and 
something  to  lose,  which  the  loafer  has  not.  His  six- 
shooter  is  of  a  better  quality  than  that  of  the  loafer,  his 
powder  is  straighter,  and,  in  short,  there  is  a  better  man 
behind  the  gun.  That  as  time  goes  on  organized  labour 
will,  as  between  labour  and  capital,  obtain  a  larger  share 
of  the  profits  of  industry  than  it  has  heretofore  received 
may  be  accepted  as  a  foregone  conclusion.  Such  a  result 
will  probably  not  be  confined  to  America ;  but  will  extend, 
at  no  very  remote  period,  to  the  whole  of  the  civilized 
world.  The  question  for  the  investor  is — how  far  inevita- 
ble reduction  of  interest  is  likely  to  be  associated  with  in- 
security of  capital.  Many  indications  point  to  the  con- 
clusion that  Communism — always  dangerous — is,  on  the 
whole,  less  alarming  in  America  than  elsewhere.  The 
singular  quietness,  with  which  the  whole  nation  settles  down 
to  business  after  the  violent  excitement  of  a  contested  Pres- 
idential election,  affords  presumptions  in  favour  of  a  peace- 
ful solution  of  strikes.  The  tendency  of  the  people  is 
rather  to  accept  arbitration  than  to  pursue  labour  quarrels 
to  their  ultimate  logical  result.  Appeals  ad  misericordiam, 
in  cases  where  the  transgressor  of  law  has  unduly  presumed 


PAIR  AND  FREE   TRADE.  21 

on  his  power  to  dictate  terms,  and — in  the  vernacular  lan- 
guage— "  got  badly  left,"  excite  very  little  pity  in  the 
public  mind.  An  uprising,  which  had  no  foundation  in  a 
real  grievance  and  is  defeated  by  unflinching  resistance, 
meets  with  its  fair  share  of  ridicule.  The  public  regards 
an  unsuccessful  striker  very  much  as  it  regards  a  player 
who  "  bluffs  "  at  poker  and  is  promptly  "  called."  He  has 
met  with  an  opponent  with  nerve  at  least  as  good  as  his  own, 
and  it  is  plain  that,  if  he  was  "  blurring,"  his  game  is  up. 

It  is  thought  by  many  competent  observers  in  this 
country  that,  at  no  very  remote  interval,  the  immense  evil 
arising  from  monetary  contraction  will  be,  to  some  extent, 
grappled  with  and  perhaps  economized.  It  is  beginning 
to  be  realized  that  as  the  legitimate  expectation  of  gain 
lies  at  the  root  of  the  liberal  employment  of  capital  in  in- 
dustrial enterprise,  consistently  falling  prices  carry  with 
them  their  own  special  nemesis.  It  may  be  doubted 
whether  the  confidence  with  which  a  higher  range  of 
prices  inspires  the  owners  of  accumulated  wealth  is  not, 
on  the  whole,  better  for  the  producing  communities  of 
the  world  than  a  very  low  range  of  prices,  which  marks 
undue  appreciation  of  gold,  and  gives  to  the  creditor  of 
several  years'  standing  an  undue  advantage,  and  to  the 
owner  of  unemployed  wealth  a  silent  and  unperceived 
increment  of  power  as  against  property  generally.*  It  is 
also  thought  not  impossible  that  the  natural  shrewdness 
of  the  American  wage-earner  may  induce  him  to  see  the 
propriety  of  submitting  to  a  reduction  of  wages,  if  satis- 
fied by  fair  explanation  on  the  part  of  the  capitalist  that 
no  profit  can  be  made  at  subsisting  rates  of  compensation, 
provided  he  is  equally  satisfied  that  an  increase  of  wages 
will  certainly  follow  on  the  realization  of  fair  profits. 

*  The  Economic  Crisis  and  Its  Causes,  M.  E.  de  Laveleye,  Contemporary 
Review,  May,  1886. 


22  FAIR  AND  FREE   TRADE. 

Again,  the  drift  of  public  opinion  is  beginning  to  set  in 
the  direction  of  resistance  to  "rings,"  or  any  type  of  or- 
ganization which  lives  by  a  policy  of  cajolery  or  intimida- 
tion and  enforces  on  its  members  a  sliding  scale  of  rewards 
and  punishments.  Neither  a  National  League  nor  a  Bir- 
mingham "  Caucus"  could  to-day  reach  its  full  stature  in 
America.  It  would  be  killed  by  ridicule  in  its  embryonic 
stage.  America  tried  the  experiment  in  Mr.  Tweed's  day, 
and  discovered  to  her  cost  that  a  compact  organization  of 
irresponsible  persons  was  a  luxury  altogether  too  expen- 
sive for  a  democratic  community  to  support.  She  be- 
queathes  the  system  as  a  legacy  to  England,  with  her  best 
wishes,  as  a  garment  for  which  she  has  no  further  use. 

Another  very  hopeful  symptom  is  the  discredit  which  is 
beginning  to  attach  to  solid  votes.  Wherever  fifty  or  one 
hundred  members  in  a  representative  body  are  prepared 
to  vote  "  solid,"  it  is  plain  that  party  organization  is  pre- 
dominant and  personal  conviction  subordinate.  The 
moral  value  of  a  solid  vote  by  the  Birmingham  "  Caucus  " 
or  by  Mr.  Parnell's  followers  is  greatly  discounted  by  the 
circumstance  that  personal  conviction  and  criticism  are 
virtually  excluded  by  the  operation  of  an  organized  scale 
of  rewards  and  punishments.  The  solid  vote  obviously 
means  that  party  governs,  and  that  patriotism  and  indi- 
vidual opinion  are  asleep.  In  America  solid  voting  is  on 
the  decline,  as  the  dignity  of  asserting  independent  con- 
viction is  becoming  more  generally  appreciated,  and  the 
servility  attached  to  "  wearing  the  collar  of  the  machine  " 
is  more  generally  felt. 

3.  Holding  these  views  as  to  her  place  in  the  interna- 
tional handicap,  it  can  be  no  matter  of  surprise  that  her 
citizens  are  willing  to  put  up  with  some  inconvenience  for 
the  purpose  of  making  the  Country  as  nearly  self-sufficing 


FAIR  AND  FREE    TRADE.  2$ 

as  possible.  She  needs  no  importation  of  food.  The 
Mississippi  valley  and  Texas  alone,  to  say  nothing  of  the 
undeveloped  territories,  afford  her  adequate  assurance 
under  this  head.  In  the  view  of  the  people,  it  remains  to 
utilize  the  resources  of  her  area,  soil  and  climate,  and  the 
ingenuity  and  energy  of  her  citizens. 

From  the  Protectionist  point  of  view, — a  view  which 
contemplates  an  indefinitely  long  period, — it  is  held  to  be 
worth  while  to  protect  and  nurse  a  variety  of  nascent  in- 
dustries in  all  those  cases  in  which  the  conclusions  of  po- 
litical economy  and  the  relations  of  environment  afford  a 
reasonable  presumption  of  eventual  success.  It  is  held 
(whether  rightly  or  wrongly, experience  must  decide)  that 
within  a  few  years  many  of  these  nascent  industries  will 
be  able  to  take  care  of  themselves  in  the  competition 
of  nations,  provided  their  infancy  is  nursed  and  fostered 
till  they  are  able  to  walk  or  run  without  assistance.  The 
most  ardent  Protectionist  would  scarcely  contend  that  a 
protective  tariff  should  not  admit,  from  time  to  time,  of 
wise  and  adroit  readjustment,  with  a  view  of  relieving  raw 
material  of  its  burdens  and  modifying,  according  to  cir- 
cumstances, the  duties  upon  finished  products.  Common- 
sense  and  practical  statesmanship  may,  it  is  thought,  be 
trusted  to  deal  with  each  case  according  to  its  peculiar 
merits. 

When  the  Free-trader  objects  that  during  this  period  the 
consumer  suffers,  the  answer  commonly  given  is  that 
production  precedes  consumption ;  that  the  producer  is 
in  turn  a  consumer ;  and  that,  although  any  specific  class 
of  producers  forms,  at  any  given  time,  a  minority  of  the 
whole  community,  still  the  verdict  of  the  whole  people 
is  in  favour  of  making  the  Country  self-sufficing.  They  are 
willing  to  make  this  effort,  even  at  the  cost  of  some  incon- 


24  FAIR  AND  FREE    TRADE. 

venience  to  the  large  majority  of  consumers.  Such  a  ver- 
dict is  rendered  by  a  national  majority  in  a  population  of 
some  fifty  millions.  It  is,  therefore,  simply  an  exercise  of 
the  popular  will  in  the  direction  of  submitting  to  tem- 
porary inconvenience,  for  the  sake  of  what  is  (rightly  or 
wrongly)  regarded  as  a  substantial  element  of  future  na- 
tional greatness.  However  absurd  such  a  view  may  appear 
to  the  uncompromising  Free-trader,  it  can  scarcely  be 
pooh-poohed  by  a  candid  thinker  as  futile  or  unpatriotic. 
Great  weight  is  attached  in  this  country  to  the  distinc- 
tion between  the  majority  of  a  whole  community  and  the 
majority  of  a  section  or  fragment  of  that  community.  The 
majority  of  the  South  desired  secession.  But  the  majority 
of  the  whole  of  the  United  States  desired  unity.  Why 
should  the  majority  of  a  section  prevail  over  the  majority 
of  the  whole  people,  if  democratic  maxims  are  to  be  con- 
sistently observed  ?  The  uncompromising  advocates  of 
Free-trade  in  England  make  but  slow  progress  in  the  con- 
version of  America.  These  gentlemen,  say  the  advocates 
of  Protection  here,  have  laid  down  some  excellent  prin- 
ciples, sound  in  tendency  and  full  of  practical  insight.  If 
all  the  nations  of  the  world  would  accept  their  rules,  there 
is  no  doubt  whatever  that  England  would  for  many  years 
to  come  profit  by  such  a  result.  But  suppose  one  success- 
ful player  proposes  the  adoption  of  a  rule,  and  several 
other  players  decline  to  accept  it.  What  then  ?  The  value 
of  a  rule  is  indefinitely  discounted  by  the  refusal  of  many 
players  to  accept  it.  Its  effect  is  necessarily  subject  to  the 
context  of  circumstances.  It  cannot  be  said  to  be  either 
good  or  bad  when  taken  away  from  its  correlation  with 
its  surroundings ;  and  one  of  the  most  important  of  its 
surroundings  is  the  consent  of  many  players  to  its  adop- 
tion. If  England  likes  to  walk  alone,  she  is  of  course 


FAIR  AND  FREE    TRADE.  2$ 

at  liberty  to  do  so.  But  it  would  be  fanciful  use  of  Eng- 
lish to  call jl^valking  in  procession.  It  is  further  urged — 
possibly  wlfjPsome  show  of  reason — that  the  English  Free- 
trade  school  made  a  definite  election  between  two  familiar 
theories  of  national  progress.  It  was  competent  to  Par- 
liament to  say  that  they  desired  to  make  England  self- 
sufficing  all  round  ;  and,  in  this  view,  to  protect  and  foster 
her  agricultural  and  possibly  other  specific  industries, 
according  to  the  exigency  of  circumstances.  It  was  also 
competent  to  Parliament  to  say  that  England's  welfare 
would  be  best  subserved  by  exclusive  devotion  to  manu- 
facture, trade  and  commerce  ;  and  that  they  were  content 
that  England  should  derive  her  food  from  foreign  sources, 
because  her  people  could  be  better  employed  in  produc- 
tive industries  outside  of  agriculture.  Perhaps,  say  Ameri- 
can Protectionists,  England  judged  wisely,  in  view  of  the 
special  conditions  affecting  her  case.  But  the  conditions 
of  America's  case  are  widely  different ;  and  we  do  not  care 
to  pin  our  faith  to  a  particular  law  or  policy,  if  its  appli- 
cation to  a  specific  instance  appears  inappropriate  and 
possibly  disastrous.  And  so  it  has  come  to  pass  that  the 
English  view  of  free  trade  is  not  received  in  America  with 
extraordinary  cordiality. 

It  is  unnecessary  to  say  that  the  above  crude  remarks 
are  not  intended  to  make  out  a  case  for  protection  in 
America ;  but  merely  to  indicate,  in  outline,  the  drift  and 
tendency  of  popular  feeling  in  this  country  on  the  subject. 
What  bearing  the  existence  and  probable  permanence  of 
this  feeling  may  have  on  the  investments  of  foreign  cap- 
italists must,  of  course,  be  judged  of  by  the  parties  con- 
cerned, according  to  their  several  idiosyncrasies  and  the 
conclusions  of  their  particular  schools  of  political  economy. 
But  the  answers  which  they  may  think  proper  to  give  are 


26  FAIR  AND  FREE    TRADE. 

not  wholly  without  meaning,  if  fairly  applied  to  a  com- 
parative survey  of  various  countries  considered  in  one  very 
limited  aspect — viz.,  their  relative  merits  ^^pheres  of 
future  investment.  Our  enquirer  will  not  overlook  the 
advantages  of  protection,  whenever  he  proposes  to  invest 
in  any  particular  form  of  protected  industrial  enterprise. 
There  is  of  course  to-day  no  sufficient  ground  for 
predicting  that  England  will  not  maintain,  for  many 
years  to  come,  the  commercial  supremacy  which  she  has 
laboured  hard  to  achieve.  But  there  is  abundant  reason 
to  say  that  the  course,  on  which  she  is  invited  by  the 
prophets  of  State  socialism  to  embark,  distinctly  involves  a 
denial  of  the  principles  and  practice  which  have  made  her 
rich  and  strong.  It  may  safely  be  affirmed  that  no  people 
educated  to  regard  the  State  as  its  dry-nurse  could  ever 
have  made  such  a  record  as  the  history  of  England  dis- 
closes. When  the  State  is  everybody's  nurse,  no  doubt 
the  nursery  is  kept  in  good  order,  but  the  children  are 
slow  in  learning  how  to  take  care  of  themselves.  Paris 
would  never  have  fallen,  if  some  twenty  years  of  Imperial 
dry-nursing  had  not  weakened  the  backbone  of  the 
French  people.  State  socialism  and  the  impending 
shadow  of  indefinite  change  are  very  real  elements  in 
existing  commercial  depression  in  England.  It  is  true  that 
England  is  very  rich.  But  capital  divorced  from  confidence 
makes,  at  best,  a  poor  show  in  the  competition  of  the  world. 
The  owner  of  capital  may  honestly  and  sincerely  desire 
to  maintain  the  commercial  supremacy  of  his  own  country. 
But,  in  nine  cases  out  of  ten,  he  would  rather  invest  it  on 
reasonably  sound  security  elsewhere,  than  retain  it  in 
English  investments  on  the  basis  of  "  ransom."  An  en- 
quirer concerning  the  best  mode  of  investing  his  modest 
competence  may  be  perfectly  willing  to  admit  Mr.  Glad- 


FAIR  AND  FREE    TRADE.  2/ 

stone's  pre-eminent  ability  in  the  management  of  Imperial 
finance,  and  his  unrivalled  lucidity  in  the  exposition  of 
his  views.  But  he  -may  be  wholly  unable  to  find  .in  the 
Premier's  policy  that  kind  of  re-assurance  which  he  looks 
for  in  the  protection  of  his  outlay  in  lands,  houses, 
ground-rents,  or  many  other  familiar  and  attractive  forms 
of  investment.  In  the  writer's  opinion,  it  is  impossible 
for  England  to  undertake  the  serious  political  retrogres- 
sion involved  in  State  socialism,  without  suffering  the 
penalties  of  corresponding  financial  retrogression. 

Beyond  a  doubt  the  institutions  of  America,  considered 
in  their  various  bearings  on  profitable  and  safe  invest- 
ment, leave  much  to  be  desired.  But,  in  spite  of  many 
drawbacks,  there  would  seem  to  be  a  reasonable  prospect 
of  that  kind  of  internal  peace  which  favours  industrial  de- 
velopment, of  reasonable  stability  in  public  feeling  and 
opinion,  and  at  least  as  high  a  security  for  the  rights  of 
property  as  can  be  found  elsewhere.  Before  England  had 
been  overtaken  by  the  wave  of  democracy,  no  doubt  real 
property  was  better  worth  having  in  that  country  than 
anywhere  else  in  the  world.  Its  ownership — according  to 
measure  and  extent — conferred  on  a  proprietor  peculiar 
advantages  dear  to  the  heart  of  the  average  Englishman. 
On  the  large  land-owner  it  conferred  indirect  political 
power  and  an  appreciable  access  of  social  importance. 
On  the  owner  of  a  modest  estate  an  atmosphere  of 
solidity  distinct  from  the  ordinary  incidents  of  mercan- 
tile prosperity.  The  merchant,  it  was  thought,  might  be 
swamped  by  speculation,  or  the  professional  man  by  ill 
health  ;  but  Providence  favoured  the  man  of  acres.  You 
always  knew  where  to  find  him — or,  at  all  events,  his 
property.  His  estate  in  -  -  shire  could  not  fly  away. 
The  powers  that  govern  the  universe  would,  it  was  felt, 


28  FAIR  AND  FREE    TRADE. 

"  think  twice  before  damning  "  the  owner  of  a  fair  freehold 
estate.  Liberal  sporting  rights  and  the  sympathy  of  the 
county  or  local  society  made  residence  in  a  sporting  shire 
a  delightful  privilege — even  at  the  cost  of  low  interest  on 
invested  capital.  The  enlightened  estate  agent,  who  was 
at  once  devout  and  artistic  and  who  recommended  a  resi- 
dence because  it  was  close  to  a  church,  generally  added 
that  there  were  two  packs  of  fox-hounds  within  reach, 
and  that  fair  shooting  and  trout-fishing  were  obtainable. 
In  short  the  ownership  of  English  land  involved  a  large 
measure  of  security,  credit,  peace  and  pleasure — which 
was  honestly  worth  every  penny  of  the  price  paid  for  it. 
But  this  view  is  undergoing  a  steady  process  of  dissolu- 
tion. Investors  of  capital  must  judge  for  themselves,  in 
view  of  recent  political  and  social  complications,  on  which 
side  of  the  Atlantic  they  have,  on  the  whole,  the  best 
prospect  of  protecting  and  enlarging  their  store.  One 
thing  is  plain,  that  if  England  abdicates  her  commercial 
supremacy,  the  humiliating  process  will  not  have  been 
compelled  from  without,  but  invited  from  within.  She 
will  have  decided  for  herself  what  is  a  proper  price  to  pay 
for  a  somewhat  servile  observance  of  successful  dema- 
gogues. 


CHAPTER  III. 

CONTROL. 


ON  the  mind  of  an  uninitiated  visitor  to  Wall  Street 
a  strong  impression  is  made  by  the  constant  recurrence 
of  the  word  '  Control '  in  discussions  affecting  the  se- 
curities of  railroad  companies  and  their  various  degrees 
of  merit  or  demerit.  He  hears  experts  say  that  it  is 
dangerous  to  touch  this  or  that  stock,  because  it 
is  "  controlled  by  A.  or  by  B's  crowd, — and  you  never 
quite  know  where  you  are."  Or,  again,  that  the  stock 
of  the  C.  Railroad  will  never  really  be  good  for  any 
thing  until  the  road  is "  controlled  by  K.  and  his  peo- 
ple." The  stranger  had  supposed  that  the  value  of  the 
securities  of  any  given  railroad  was  roughly  measured  by 
comparatively  simple  and  definite  conditions  ;  such,  for 
instance,  as  the  amount  of  the  company's  fixed  and  float- 
ing debt,  the  volume  of  its  business,  the  relation  between 
net  and  gross  receipts,  the  ability  of  its  executive,  and  so 
forth.  Ten  or  twelve  years'  familiarity  with  the  details  of 
railroad  administration  in  its  various  relations  to  Wall 
Street  would  lead  him  to  the  conclusion  that  "  control  " 
has  more  to  do  with  values  than  he  had  supposed,  and 
that  it  is  a  word  of  the  first  importance  in  the  railroad  vo- 
cabulary. 

Some  observations  have  been  made  above  (pages  8-10) 
as  to  the  history  and  growth  of  American  railroads,  and 
it  has  been  indicated  that  a  great  number  of  these  have 

29 


30  CONTROL. 

been  built  in  very  large  part  with  foreign  money.  It  has 
been  further  noticed  that  many  of  these  were  built  in  ad- 
vance of  any  real  need  for  them  ;  and  were,  in  short,  rather 
promoters'  roads,  than  expressions  of  genuine  supply  ad- 
dressed to  meet  a  pressing  demand  for  effective  transpor- 
tation. 

In  days  of  so-called  "  inflation,"  which  perhaps  might 
better  be  described  as  periods  of  irrepressible  speculative 
restlessness,  there  was  a  general  scramble  for  all  sorts  of 
privileges  which  seemed  to  possess  elements  of  remote 
potential  value.  Concessions  to  construct  public  works 
and  enterprises  in  foreign  countries  were  eagerly  sought, 
in  spite  of  very  imperfect  knowledge  of  their  environ- 
ment. A  promising  sphere  for  the  construction  of  a  rail- 
road was  instantly  pounced  upon,  and  innumerable  routes 
for  future  railroads  were  selected  and  protected  by  char- 
ters granted  by  various  American  States.  The  limited 
scope  of  such  charters  was  but  imperfectly  understood  in 
Europe,  or  understood  only  by  a  few,  and  not  generally 
investigated  or  discussed.  The  solemnity  of  a  charter, 
its  seal,  its  language,  its  formality,  were  impressive  details. 
If  a  Government  subsidy  in  the  form  of  land  were  added, 
the  success  of  an  effort  to  raise  money  in  Europe  was 
almost  assured.  To  the  uninstructed  mind,  the  notion  of 
connecting  the  ".rolling  Atlantic  "  with  the  waters  of  the 
"blue  Pacific"  was  pictorially  irresistible.  To  "tap" 
the  resources  of  districts  possessing  untold  latent  wealth 
seemed  an  attractive  privilege,  rather  than  an  incalculable 
risk.  And  so  it  happened  that  European  money  was  very 
freely  invested.  So  great  was  the  encouragement  offered 
to  the  energetic  American,  that  he  did  not  hesitate  to  em- 
ploy his  means  in  building  a  mile  or  two  of  railroad  from  his 
house  to  his  sand-pit  in  an  Eastern  State,  and  then  fear- 


CONTROL.  .  3 1 

lessly  propose  extension  to  San  Francisco,  or  some  other 
indefinitely  remote  point.  It  is  quite  true  that  he  might 
be  imperfectly  equipped  for  so  great  an  undertaking.  He 
might,  for  instance,  have  a  mule  and  a  five-dollar  bill. 
History  shows  that  this  is  an  insufficient  basis  on  which 
to  undertake  a  transcontinental  railroad.  Still,  if  Europe 
was  good  to  find  the  necessary  money,  the  energetic  con- 
tractor had  no  reason  to  complain.  When  the  money 
was  provided,  the  foreign  investor  rarely  took  the  pains 
to  insist  on  having  his  own  representative  on  the  board 
of  the  constructing  company,  or  on  its  executive  com- 
mittee, for  the  purpose  of  checking  improper  expen- 
diture ;  and  the  neglect  of  this  precaution  resulted  in  a 
luxuriant  crop  of  extravagance  and  jobbery,  which  judi- 
cious restraint  might  have  prevented  or  minimized. 

The  tremendous  effort  made  by  the  North  to  preserve 
the  integrity  of  the  Union  was  a  fine  display  of  decision 
and  patriotism.  But  it  necessarily  involved  sacrifices  re- 
sulting in  grave  and  enduring  difficulties.  The  inevitable 
effect  of  the  war  was  to  let  loose  evil  passions  and  to  dis- 
integrate, to  a  certain  extent,  the  creed  and  the  canons 
of  commercial  morality.  A  vast  number  of  people  had 
been  hopelessly  wrecked  and  ruined.  It  could  hardly  be 
expected  that  complete  re-adjustment  of  old  relations 
would  be  accomplished  in  a  year.  The  Country  was  de- 
pressed. Ill-conceited  undertakings  failed  to  answer  the 
expectations  forml'd  of  them.  Many  railroads  constructed 
or  in  course  of  construction  failed  to  pay  or  to  give  reason- 
able assurance  of  ultimate  success.  Their  securities  could 
not  be  regarded  as  safe  and  profitable  investments,  and 
became  a  foot-ball  upon  the  "  Street."  Fortunes  could 
not  be  made  out  of  their  coupons'  or  dividends.  Yet, 
many  large  fortunes  were  put  together  in  Wall  Street  in 


32  CONTROL. 

connection  with  railroads  to  a  large  extent  built  by  foreign 
capital, — and  quite  unsuccessful, — considered  as  strictly 
commercial  concerns.  Observant  people  were  struck  with 
this  difficulty,  and  enquired  for  the  key.  The  answer  they 
received  was  simply  "  Control." 

To  give  a  scientific  definition  of  this  word,  in  such  a  form 
as  to  meet  the  requirements  of  the  critic,  would  be  diffi- 
cult ;  at  all  events,  it  is  too  serious  a  task  for  the  writer  to 
attempt.  A  rough  description  of  one  of  its  aspects — suffi- 
cient for  immediate  practical  purposes — may  properly  be 
essayed.  In  this  view,  "  Control  "  is  the  power  of  creat- 
ing and  regulating  a  market,  in  relation  to  the  securi- 
ties of  a  given  undertaking,  which  its  creator  subse- 
quently proposes  to  interpret  for  his  own  advantage. 
Obviously,  this  attempt  at  description  must  appear  very 
obscure  in  the  absence  of  some  reference  to  the  context 
of  circumstances.  It  may  be  pertinent  to  indicate  one  or 
two  salient  points.  The  general  situation  postulated  cer- 
tain conditions,  which  might  be  matter  of  regret,  but 
could  scarcely  be  matter  for  wonder  or  surprise.  As 
above  noted,  a  serious  shock  had  been  given  to  subsist- 
ing commercial  relations  and  to  the  unwritten  code  which 
was  supposed  to  define  and  govern  good  faith  in  trade. 
The  unflinching  repudiation  of  their  just  obligations  by 
several  American  States  is  evidence  (sufficient  for  the 
present  purpose)  of  the  existence  of  great  demoraliza- 
tion. Many  enterprises  when  involved  in  serious  diffi- 
culty had  been  resuscitated  or  helped  more  than  once 
by  Wall  Street  financiers,  and  were  virtually  in  their 
hands.  The  latter  had  little  hope  of  recovering  their 
outlay  from  coupons  on  bonds  or  dividends  on  stock. 
But,  if  the  restless  spirit  of  the  day  made  the  securities 
of  these  doubtful  enterprises  sufficiently  active  (in  its 


CONTROL.  33 

technical  sense),  remunerative  coups  in  stock  might  oc- 
casionally be  possible. 

Let  us  imagine  ourselves  for  a  moment  going  into  coun- 
cil in  Wall  Street  or  its  neighbourhood,  and  considering, 
in  a  comfortable  bank  parlour  over  excellent  cigars,  how 
"  Control "  might  be  utilized  for  the  purpose  of  retrieving 
serious  losses  or  risks  on  the  part  of  the  Wall  Street  allies 
of  the  railroad.  Let  us  suppose,  for  argument's  sake,  that 
an  imaginary  railroad,  the  prospects  of  which  are  under 
discussion,  has  an  unduly  large  capital,  and  that  a  great 
majority  of  its  securities  are  held  in  Europe  ;  that  it  has, 
so  far,  not  finally  or  badly  defaulted  on  its  funded  indebt 
edness ;  that  there  is  an  active  market  with  an  upward 
tendency ;  that  the  latest  official  report  of  the  road  has 
inspired  some  confidence  ;  and  that  its  stock  is  worth — • 
for  speculative  purposes — (say)  forty  cents  on  the  dollar. 
Its  floating  debt  is  in  fact  very  large,  because  it  has  a 
great  deal  of  outstanding  paper,  which,  though  approach 
ing  maturity,  has  not  actually  matured,  and  has  therefore 
not  been  published  as  part  of  its  floating  debt.  The  state 
of  the  market  is  very  tempting.  We  call  upon  Mr.  Jeffen 
son  J.  Wiggins,  whose  intelligence  is  well  known,  and 
who  has  a  great  deal  of  money  in  the  road,  to  advise 
us  what  we  shall  do.  To  save  time  and  avoid  unnecessary 
details  the  effect  of  his  advice  may  be  crudely  summarized 
as  follows : 

ist.  The  stock  is  at  forty,  market  active.  Some  months 
must  elapse  before  crops  can  be  moved.  Plenty  of  room 
for  sucessful  operation.  Roughly  as  follows : 

2d.  Let  our  pool  sell  "  short "  at  present  prices,  but 
gradually,  not  hurrying  the  market.  Before  the  stock 
goes  down  to  twenty-seven,  we  shall  have  sold  enough  to 
initiate  a  coup. 


34  CONTROL. 

3d.  We  want  to  cover  our  "  shorts"  at  about  twenty. 
Proceed  as  follows : 

(a)  Let  our  financial  organ  state  that  the  prospects  of 
the  harvest  to  which  we  have  looked  forward  are  very 
poor.     Express  doubts  whether  the  Directors  ought  not 
to  fund  next  coupon. 

(b)  Let   prominent  stockholder  announce  that  he  has 
trustworthy  information  to  the  effect  that  the  last  divi- 
dend on  preference  stock  was  not  earned.     He  therefore 
asks  immediate  Receivership. 

(c)  In  view  of  this  important  development,  let  Direc- 
tors announce  that  they  feel  it  incumbent  on  them  to 
pass  the  next  coupon. 

(d)  Let  organ  state  that  negotiations  concerning  ter- 
minal facilities  in  a  leading  city  have  broken  down. 

(e)  Let  a  prominent    bondholder   connected  with   the 
only  leased  line  that  pays  propose  to  take  immediate  pro- 
ceedings to  invalidate  the  lease. 

(/)  Let  organ  announce  that  there  is  an  immediate 
prospect  of  a  war  of  rates.  Under  the  circumstances, 
in  spite  of  the  vast  business  which  the  road  carries  on,  it 
will 'probably  have  to  do  a  great  part  of  it  during  the  next 
year  at  less  than  cost. 

(g}  Let  a  prominent  reformer  suggest  a  legislative 
investigation  with  a  view  to  the  forfeiture  of  the  charter. 

The  above  programme  will  probably  put  the  stock 
down  below  twenty.  All  that  you  can  buy  at  that  figure 
will  give  you  a  profit  when  we  are  hereafter  ready  to  put 
up  the  stock. 

Imagine  yourself  a  foreign  stockholder  under  these  de- 
pressing circumstances.  You  naturally  tear  your  hair 
and  sell  out  without  a  moment's  delay.  Perhaps  it  does 
not  occur  to  you  that  the  party  who  put  down  the  price 
will,  in  fact,  become  the  purchasers  of  your  stock. 


CONTROL.  35 

Let  us  now  avail  ourselves  for  a  moment  of  the  privi- 
lege extended  to  the  dramatist  and  novelist,  and  say  that 
here  an  interval  of  some  months  has  elapsed,  and  then  let 
us  suppose  ourselves  meeting  again  amid  personal  sur- 
roundings similar  to  those  above  outlined.  Our  little 
friendly  pool  has  sold  "  short  "  largely,  beginning  at 
forty,  and  have  "  covered  their  shorts  "  (i.  e.,  bought  back 
cheaply  stock  which  they  sold  dearly  for  future  delivery) 
in  the  twenties.  Some  members  of  the  pool  who  could 
raise  the  ready  money  have  bought  heavily  in  the  neigh- 
bourhood of  twenty.  Since  the  meeting  above  described 
.the  market  has  undergone  many  fluctuations,  but  it  is  to- 
day active  and  buoyant.  Again  we  defer  to  Mr.  Jeffer- 
son J.  Wiggins'  great  experience,  and  ask  him  what  we 
shall  do.  Again  we  summarize  the  effect  of  his  masterly 
advice  in  a  few  crude  paragraphs : 

1st.  The  market,  says  he,  is  favourable.  Stock  will  go 
up  rapidly,  if  we  have  any  thing  to  go  up  on.  Why  not 
try  something  as  follows  ? 

(a)  Let  organ  state,    at  convenient  intervals  of  time, 
that,  much  needless  alarm  having  been    felt   about   the 
floating  debt  of  the  Company,  we  are  authorized  to  say 
that  our  indefatigable  President  is  negotiating  with  an 
eminent  firm  of  bankers  for  the  complete  discharge  of 
this  indebtedness  by  the   issue  of  (say)  income   bonds. 
This  will  enable  the  Company  to  handle  the  unexpected 
access  of  its  business  with  unexampled  promptness  and 
efficiency. 

(b)  Organ:  We  are  delighted  to  announce   that   the 
wretched   croakers   who   prophesied   a   bad   harvest   are 
wholly  mistaken  in  their  forecast.      In  respect  of   one 
Road  (our  Road)  at   least,  it  is  confidently  anticipated 
that  the  volume  of  business  will  surpass  the  record  of 
any  previous  year. 


36  CONTROL. 

(c)  Organ  again :    We  are  glad  to  be  able  to  announce 
that   the   prominent   stockholder,  whose   deep   sense   of 
integrity  compelled  him  to  institute  a  suit  against  the 
Company,  in  spite  of  his  reluctance  to  prejudice  his  own 
pecuniary  interests,  has  withdrawn  his  suit,  and  acknowl- 
edges in  his  well-known  frank  and  manly  way  that  he  was 
entirely  mistaken  in  supposing  that  a  dividend  on  prefer- 
ence stock  had  been  improperly  paid.     We  understand 
that  he  has  fortified  his  opinion  by  a  large  increase  in  his 
already  heavy  investments  in  the  securities  of  the  Company. 

(d)  Organ  again :  We  understand  that  our  indefatigable 
President  has  succeeded  in  securing,  on  very  favourable 
terms,  an  alliance  with  the  K.  C.  B.  system.     By  this  well- 
conceived  and  far-sighted  policy  it  is  plain  that  the  im- 
mense traffic  accruing  from  a  direct  connection  at  Jericho 
Junction  with  the  Jerusalem  extension  of  the  K.  C.  B. 
system  will  hereafter  pass  over  the  track  of  the  A.  B.  (our) 
Road,  and  indefinitely  increase  the  volume  of  its  already 
enormous  traffic. 

(e)  Organ  again  :  In  view  of  this  astounding  develop- 
ment, the  indefatigable  President  of  the  A.  B.  Railroad 
has  entered  into  negotiations  with  a  prominent  syndicate 
of  European  bankers  with  a  view  to  laying  the  whole  line 
of  the  A.  B.  Railroad  with  steel  rails.     It  is  thought  that, 
on  the  L.  M.  section  of  this  great  road,  it  may  be  neces- 
sary to  quadruple  the  existing  track,  in  anticipation  of 
the  immense  access  of  business  expected  during  the  ap- 
proaching Fall. 

(f)  Organ  again :    Negociations  for  extended  terminal 
facilities  in  the  City  of  Q.,  which  were  recently  intercept- 
ed, have  been  resumed  under  conditions  favourable  to  the 
A.  B.  Railroad.     This  coup   must  be  regarded  as  a  most 
important  (though  scarcely  to  be  expected)  addition  to 


CONTROL.  37 

the  resources  of  this  great  system,  which  bids  fair  to  swal- 
low up  its  rivals,  as  the  rod  of  Aaron  swallowed  the  futile 
devices  of  the  Egyptian  magicians. 

(g)  Organ  again  :  We  are  authorized  to  contradict  the 
impression  that  any  legislative  investigation  is  intended,  as 
it  has  been  conclusively  demonstrated  that  no  grounds  ex- 
ist for  such  a  proceeding.  A  prominent  Legislator  has 
stated  in  a  recent  interview  that  the  future  of  the  A.  B. 
Railroad  appears  to  him  exactly  like  that  of  the  great 
American  Republic,  occasionally  decried  by  the  ignorant 
and  irresponsible,  but  ultimately  destined  to  proceed  with- 
out interruption  on  its  majestic  march,  wholly  regardless 
of  the  petty  obstacles  interposed  in  its  path  by  envious 
and  disappointed  rivals. 

It  is  scarcely  necessary  to  say  that  Mr.  Wiggins'  insight 
into  the  situation  is  promptly  accepted,  and  week  by 
week  the  stock  recovers  itself  by  "leaps  and  bounds." 
Once  more  the  wretched  foreign  stockholder  tears  his 
hair,  and  instructs  his  brokers  without  a  moment's  delay 
to  buy  back  the  stock  which,  in  an  access  of  unreasoning 
panic,  he  recently  sold.  "  How,  in  the  name  of  all  the 
gods,"  he  says  to  himself,  "  can  anybody  be  so  foolish  as 
to  part  with  a  stock  of  this  description  for  the  nominal 
value  of  fifty  cents  on  the  dollar?  Well,"  he  resumes 
thoughtfully,  "  I  was  once  foolish  enough  to  sell  out  my 
stock  in  obedience  to  a  misguided  impulse,  and  I  suppose 
that  others  are  the  unhappy  victims  of  the  same  delusion. 
Why  should  I  not  recoup  myself  at  their  expense  ?"  Poor 
man  !  He  does  not  know  that  the  same  party  which 
bought  his  stock  at  twenty  will  before  long  quietly  "  un- 
load "  upon  him  in  the  neighbourhood  of  fifty,  and  that 
ere  two  years  have  elapsed  the  same  process  with  all  its 
harrowing  details  will  be  repeated. 


38  CONTROL. 

But  it  is  not  merely  in  respect  of  the  adroit  manipula- 
tion of  the  market  that  the  word  "  Control "  has  a  special 
significance  for  the  uninstructed  investor.  The  word 
involves  many  other  important  elements  of  success  or 
failure — (e.  g.)  the  question  of  leased  lines,  issue  of  new 
capital,  special  contracts  and  the  like. 

Leased  Lines. 

As  the  investor  becomes  more  familiar  with  the  subject, 
he  will  readily  note  that  many  trunk  lines,  which  would 
pay  enormous  dividends  if  standing  alone,  are  grievously 
hampered  by  parasitical  groups  of  leased  lines.  He  will 
conclude  that,  in  many  instances,  what  are  popularly 
known  as  "  feeders  "  might  better  be  described  as  "  suck- 
ers." The  old  tree  has  plenty  of  sap,  but  it  needs  the 
pruning  knife.  Instances  of  course  occur  in  which  an 
expensive  branch  line  not  only  pays  its  way  but  helps 
the  main  stem.  But,  in  a  far  larger  number  of  instances, 
branches  constitute  a  serious  embarrassment.  Sometimes 
it  happens  that  the  branch  line  has  been  originally  built 
by  private  projectors,  either  with  a  view  to  develope  real 
estate  of  their  own,  or  in  deference  to  popular  clamour  in 
local  circles.  If  the  cost  of  building  such  a  branch  had 
never  been  incurred,  nor  its  adoption  by  a  main  line  pro- 
cured, a  clique  of  land  owners  or  perhaps  a  limited  local 
public  might  have  been  dissatisfied.  But  still  topograph- 
ical and  physical  conditions  would  have  compelled  them 
to  bring  the  bulk  of  their  business  to  the  main  line.  In 
short,  what  the  main  line  really  gains  from  the  extension 
is,  not  the  whole  of  the  business  carried  by  the  extension, 
but  only  the  excess  over  and  above  the  amount  of  busi- 
ness which  the  main  line  would  have  obtained  in  any  case 
if  the  extension  had  not  been  built.  That  circumstance 


ISSUE   OF  NEW  CAPITAL.  39 

appreciably  reduces  the  desirability  of  the  branch,  and 
puts  a  new  interpretation  on  its  earning  power,  as  com- 
pared with  the  cost  of  construction  and  maintenance. 

Or  again,  a  branch  line  has  been  advocated  by  cordial 
friends — possibly  even  by  one  or  two  Directors — of  the 
main  line.  The  parties  concerned  have  been  sanguine 
rather  than  critical,  and  a  large  guarantee  of  interest  either 
on  the  bonds  or  stock  of  the  branch  Company  has  been 
given.  There  will  come  within  the  enquiring  investor's 
observation  dozens  of  cases,  in  which  the  capitalized 
value  of  the  branch  (on  which  interest  in  some  form 
has  been  guaranteed)  is  far  in  excess  of  any  cold-blooded 
and  critical  estimate  of  its  real  worth.  Suppose  six 
or  seven  per  cent,  to  be  guaranteed  on  a  capital  far  ex- 
ceeding the  value  of  a  leased  line.  Next,  suppose  that 
competition  and  Railroad  Commissioners  so  reduce  rates 
that  the  main  line  can  pay  little  or  nothing  by  way  of 
dividend  on  its  own  stock.  The  holders  of  the  securities 
of  the  leased  line  have  reason  to  rejoice  in  their  assured 
income.  But  the  holders  of  the  junior  securities  of  the 
main  line  can  scarcely  be  expected  to  be  enthusiastic 
about  it.  The  uninitiated  investor  will  merely  note  that 
careful  and  conservative  boards  hesitate  very  much  before 
committing  themseves  to  such  liberal  guarantees  ;  but 
that,  under  speculative  forms  of  "  Control,"  leased  lines 
have  been  accepted  with  astounding  avidity. 

Issue  of  New  Capital. 

The  light-hearted  issue  of  unnecessary  capital  is  another 
point  which  our  simple-minded  enquirer  will  naturally  take 
into  consideration.  It  will,  of  course,  have  occurred  to 
him  that  the  tendency  of  the  times  is  unmistakably  to 
reduce  the  rate  of  interest  earned  by  safely  invested  capi- 


40  CONTROL. 

tal,  in  railroads  as  well  as  in  other  forms  of  enterprise. 
Where  invested  capital  is  practically,  though  not  nomi- 
nally, earning  twelve  or  fourteen  per  cent.,  he  will  note 
that  such  a  result  is  especially  liable  to  suffer  from  the 
"  changes  and  chances  of  this  mortal  life."  Such  a  rate  of 
interest  is,  of  course,  far  less  likely  to  be  permanently 
sustained  than  a  rate  of  four  or  five  per  cent,  on  a  sound 
commercial  security.  It  is  at  this  point  and  in  this  con- 
nection that  his  attention  will  fasten  on  the  question  of 
unnecessary  capital,  which  practically  amounts  to  "  water" 
in  one  form  or  another.  It  is  plain  that,  if  a  railroad  is 
to-day  earning  four  or  five  per  cent,  on  any  given  capital, 
including  "  water,"  while  only  (say)  half  of  that  capital 
was  really  and  honestly  invested  in  the  undertaking,  it  is, 
in  fact,  earning  eight  or  ten  per  cent,  upon  the  capital  in- 
vested. It  is  easy  for  our  enquirer  to  perceive  that  the 
tendency  of  the  times  is  adverse  to  the  supposition  that 
very  heavily  "  watered  "  concerns  can  permanently  and 
consistently  pay  large  dividends  on  both  genuine  stock 
and  on  a  large  and  light-hearted  infusion  of  "  water." 

Special  Contracts. 

If  our  enquirer  is  wise,  he  will  probably  not  be  greatly 
intimidated  by  the  idea  of  "  ghost  trains."  But  he  will 
perhaps  discover  that,  to  a  certain  extent,  discrimination 
in  favour  of  friendly  cliques,  under  the  guise  of  special 
contracts  for  transportation  etc.,  is  not  a  mere  figment. 
Possibly  he  will  do  well  to  conclude  that  abuses  of  this 
kind  are  incidents  of  a  speculative  form  of  "  control," 
but  are  emphatically  discountenanced  by  every  sound 
and  conservative  administration. 

Let  us  take,  for  example,  some  familiar  irregularities 
which  would  certainly  have  been  restrained,  if  foreign 


SPECIAL   CONTRACTS.  41 

stockholders  some  fifteen  or  twenty  years  ago  had  been 
more  careful  about  their  direct  representation  on  railroad 
boards.  Let  us  suppose  that  a  Director  on  a  central 
board  is  interested  in  an  unfinished  leased  line  which  his 
company  desires  to  control,  or  holds  shares  in  a  rolling 
stock  company  from  which  his  board  proposes  to  hire 
cars,  or  has  a  heavy  stake  in  an  oil  company  with  which 
a  special  contract  is  to  be  made.  His  personal  interest 
points  to  a  large  capitalization  and  a  liberal  rental  for  a 
leased  line,  to  a  liberal  rent  for  cars,  or  to  a  low  rate  for 
oil  under  any  special  contract  that  may  be  made.  In 
short,  his  personal  interests  are  in  direct  conflict  with  his 
fiduciary  capacity.  No  doubt  his  faith  in  the  value  of 
the  subordinate  undertaking,  in  which  he  has  become  a 
shareholder,  was  the  cause  of  his  investing  in  it.  But, 
just  because  his  confidence  in  its  merits  is  very  great,  his 
estimate  of  its  value  is  apt  to  be  somewhat  sanguine.  It 
would  be  by  no  means  as  critical  as  the  view  of  a  Director 
who  represented  exclusively  interests  which  would  be  best 
subserved  by  strict  economy. 

A  few  years  ago  the  European  stockholder  did  not 
know  enough  about  American  railroads  to  put  his  finger 
on  the  real  points  of  leakage.  He  was  credulous  enough 
to  believe  that  his  railroad  did  not  pay,  because  American 
engineers  were  incompetent,  and  American  officials  could 
not  run  a  railroad  efficiently  and  keep  its  accounts  clearly. 
Our  enquirer  is  very  likely  to  infer  from  what  he  sees  that, 
if  European  investors  had  concentrated  their  vigilance  and 
attention  on  the  wise  and  conservative  administration  of 
financial  and  board  business,  instead  of  worrying  them- 
selves about  engineering  and  executive  details,  they 
would  have  saved  untold  millions  of  cash,  which  are  to- 
day, so  far  as  they  are  concerned,  represented  exclusively 
by  a  mournful  experience. 


42  CONTJWL. 

He  will  pay  some  attention  to  the  relation  which  sub- 
sists between  the  real  owners  of  a  railroad  and  the  repre- 
sentatives by  whom  their  interests  are  protected.  Sup- 
pose him  to  have  acquired  his  knowledge  of  railroad 
administration  in  England,  it  will  appear  to  him  incon- 
gruous that  one  set  of  people  should  have  provided  all 
the  capital,  and  that  quite  another  set  should  control  it. 
In  England  stockholders  commonly  build  a  road  out  of 
their  own  resources  ;  and  when  they  have  brought  it  to 
such  a  point  of  development  as  to  constitute  a  real  se- 
curity for  money,  they  mortgage  it,  in  the  form  of  bonds, 
for  all  that  it  will  carry.  Obviously,  in  such  a  case,  stock- 
holders are  the  real  owners  of  the  property,  and  the  bond- 
holders are  their  mortgagees.  So  long  as  the  obligations 
of  the  mortgage  are  properly  fulfilled,  the  bondholder  has 
no  reason  for  complaint,  unless  indeed  the  corpus  of  the 
security  is  wasted  by  the  methods  adopted  for  the  raising 
of  the  interest.  But  in  a  great  number  of  American  rail- 
roads the  stockholders  had  no  means  of  their  own  out  of 
which  to  construct  and  equip  a  railroad.  The  foreign  bond- 
holders supplied  the  money  ;  the  native  stockholder  was 
in  clover.  He  stood  to  win,  and  not  to  lose.  If  the  re- 
sources of  the  district  not  only  grew  up  to  the  fixed 
charges,  but  made  the  railroad  worth  more  than  its  fund- 
ed debt,  the  excess  of  value  was  the  stockholder's  profit. 
If  success  stopped  somewhat  short  of  this,  he  disposed  of 
contracts  to  intermediary  construction  companies,  and 
stood  in  with  them.  But  whatever  profit  he  made  came 
out  of  the  bondholder's  pocket,  and,  if  the  enterprise 
proved  a  failure,  he  lost  nothing. 

It  is  plain  that  burthens  and  privileges  are  closely  corre- 
lated. Profit,  power,  control,  patronage,  are  properly  in- 
cident to  the  cash  that  builds  the  railroad.  When  foreign 


SPECIAL   CONTRACTS.  43 

investors  furnished  ten  or  twenty  millions  of  dollars,  why 
not,  in  every  case,  have  provided  for  a  strong  confidential 
representation  and  protection  of  their  own  interests,  with 
a  condition  that  their  representatives  should  be  properly 
compensated — as  an  incident  of  the  capital  which  they 
provided — before  stockholders,  who  found  no  money, 
were  entitled  to  profit  ?  Our  enquirer  will  note  that, 
either  in  the  case  of  original  investment  or  in  a  reorgani- 
zation, the  sort  of  control  which  will  best  serve  his  pur- 
pose is  the  control  of  the  people  who  find  the  money,  and 
not  01  the  people  who  do  not. 


CHAPTER    IV. 

COMBINATION. 

IT  has  often  been  said  that  combination  of  railroads 
would  tend  to  undermine  the  rights  of  the  people,  and 
grievous  disasters  have  been  prophesied  in  its  name.  An 
a  matter  of  fact,  judging  by  a  critical  rather  than  by  an 
emotional  standard,  we  must  admit  that  the  disasters 
predicted  have  not,  so  far,  come  off  in  accordance  with 
the  programme  of  the  alarmists.  Whatever  dangers  may 
result  to  society,  in  a  political  point  of  view,  from  the 
concentration  of  vast  fortunes  in  the  hands  of  the  few, 
combination  has  certainly  not  issued  in  the  raising  of 
rates.  So  far,  the  public  at  all  events  has  no  reason  for 
complaint.  It  has  indeed  been  objected  to  combination 
that  power  would  be  centralized  in  fewer  hands  ;  that  the 
limits  of  possible  coups  would  be  enlarged,  and  the  in- 
ducement to  institute  them  correspondingly  increased ; 
that  ampler  funds  would  be  available  for  the  caprice  of  a 
speculative  board  ;  that  the  representation  of  parallel  and 
possibly  conflicting  interests  would  become  less  direct 
and  less  crisply  defined.  Further  that  it  would  become 
possible  to  subordinate  the  interests  of  one  or  another 
section  of  a  combined  undertaking  to  those  of  a  particular 
section  in  connection  with  which  a  coup  was  projected. 

Though  experience  shows  that  such  apprehensions  were 
not  wholly  unfounded,  the  obvious  answer  occurs  that 
dangers  of  this  kind  are  inherent  in  speculative  control ; 

44 


COMBINA  TION.  45 

and  are  not  valid  objections  to  the  principle  or  prac- 
tice of  combination  as  such.  Given  a  sound  and  con- 
servative administration,  in  which  the  rights  of  various 
elements  composing  the  combined  undertaking  are  ade- 
quately and  intelligently  represented,  the  dangers  feared 
become  shadowy  in  the  extreme.  If  the  holders  of  the 
stock  of  a  section  were  properly  represented  on  the  cen- 
tral board,  to  pet  one  section  and  starve  another  would 
simply  be  out  of  the  question.  No  unjust  discrimination 
in  investing  funds  provided  in  the  interest  of  the  general 
undertaking  would  for  a  moment  be  tolerated.  Specula- 
tive investment — (e.  g.)  in  coal  lands,  real  estate,  unfinished 
leased  lines,  or  other  "  fads  " — would  be  resolutely  op- 
posed and  at  once  killed  by  inside  and  responsible  oppo- 
sition. 

It  cannot  be  doubted  that  the  substitution  of  a  central 
board  for  two  or  three  sectional  boards  makes  a  substan- 
tial saving  in  the  cost  of  administration.  If  the  services 
of  competent  men  are  secured  for  sectional  boards,  they 
must  be  paid  for  at  market  price ;  and  a  very  cheap  arti- 
cle will  scarcely  answer  the  purpose.  Again,  a  combined 
enterprise  has  the  advantage  of  undivided  judgment  and 
unrestricted  freedom  in  laying  out  its  programme  of 
through  business.  The  several  sections  are  under  one 
control,  and  can  be  worked  with  organic  unity  and  pre- 
cision. The  elasticity  of  existing  resources  is  multiplied.' 
The  rolling  stock,  equipment,  staff  and  general  appurte- 
nances can  be  shifted  and  transferred  with  facility.  Pres- 
sure in  one  part  of  the  system  can  be  relieved  by  the 
superfluous  resources  of  another  part.  The  economy 
towards  which  combination  tends  is  not  a  matter  of  a  day. 
It  operates  during  the  whole  three  hundred  and  sixty-five 
days  of  the  year. 


46  CO  MB  IN  A  TION. 

Then  again,  wasteful  or  unnecessary  forms  of  competi- 
tion can,  in  many  instances,  be  suppressed  or  dispensed 
with.  While  it  is  quite  true  that,  in  the  main,  competition 
protects  the  public  against  unfair  charges,  it  is  possible 
(in  vernacular  language)  to  run  this  principle  "  into  the 
ground."  The  public  needs  a  certain  amount  of  trans- 
portation. The  best  service  will  be  rendered  by  that 
system  which  supplies  exactly  what  is  wanted,  no  more 
and  no  less.  When  two  competing  companies  send 
rival  trains  approximately  from  and  to  the  same  ter- 
minal points,  and  each  is  loaded  far  below  the  point  of 
paying  business,  that  is  not  really  beneficial  to  the  public. 
Neither  of  the  two  companies  dares  to  withdraw  its  train, 
lest  its  rival  steal  a  march.  The  result  is  a  service  in- 
ferior from  the  point  of  view  of  the  public,  because  unre- 
munerative  from  the  point  of  view  of  the  transporting 
companies.  An  appreciable  amount  of  power  is  wasted 
in  unnecessary  friction.  Combination  would  enable  the 
rival  companies  to  put  on  one  superior  train,  instead  of 
two  or  three  inferior  ones,  adequate  to  all  the  requirements 
of  the  public  at  a  slightly  reduced  price,  and  to  make  a 
living  profit  for  their  stockholders  besides.  The  encour- 
agement would  grow  and  multiply  as  development  pro- 
ceeded under  the  guidance  of  sound  management.  It 
would  come  to  be  understood  that  the  interests  of  the 
public  and  of  the  transporting  companies,  though  not 
strictly  co-extensive,  largely  overlap  one  another,  and  that 
the  best  result,  from  both  sides  of  the  question,  is  that  a 
genuine  and  satisfactory  service  be  consistently  and  unin- 
terruptedly rendered  at  a  fair  market  price.  The  recurring 
disturbance  of  existing  contracts  and  relations  produced 
by  the  strain  of  excessive  competition,  and  the  uncer- 
tainty and  disappointment  incident  thereto,  are  highly 


COM  BIN  A  TION.  47 

injurious  to  prosperous  trade  and  public  convenience  on 
the  one  hand,  and  to  successful  railroad  administration  on 
the  other.  It  is,  in  the  writer's  opinion,  a  grave  mistake 
to  suppose  that  the  inferences  derivable  from  experience 
really  point  to  the  conclusion  that  railroads  judiciously 
combined  or  consolidated  are  less  efficiently  managed 
than  those  which  are  operated  by  fractions.  As  Mr.  C.  F. 
Adams  Jr.  has  well  pointed  out,*  the  enlargement  of 
power,  judgment  and  resources  is  apt  to  beget  an  enlarged 
sense  of  responsibility.  Suppose  many  years  ago  the 
English  Government  had  permitted  the  combination  of 
the  southern  lines  leading  out  of  London,  and  had,  in 
consideration  thereof,  asked  one  or  two  minor  concessions 
for  the  protection  and  convenience  of  the  public.  Does 
any  practical  railroad  administrator  doubt  that  a  better 
and  cheaper  service  would  to-day  be  at  the  command  of 
the  public,  and  that  the  stockholder  would  be  the  richer 
by  untold  thousands  of  pounds?  No  doubt  such  a  com- 
bination, in  order  to  be  thoroughly  satisfactory,  would 
have  needed  at  the  outset  very  skilful  adjustment  of  sub- 
sisting interests,  and  very  adequate  and  balanced  repre- 
sentation of  those  interests  for  all  time.  But  that  would 
not  have  formed  an  insuperable  difficulty,  if  the  immense 
advantages  of  enlightened  combination  had  been  thor- 
oughly understood  and  frankly  accepted. 

If  the  foregoing  view  be  substantially  true, — our  en- 
quirer will  not  be  at  all  frightened  at  the  mere  fact  of 
combination  as  such.  On  the  contrary,  he  will  be  wise  to 
bear  in  mind  that  the  unmistakable  tendency  of  compen- 
sation to  transporting  companies  is  towards  a  lower,  not 
a  higher,  level ;  and  that,  as  a  corollary,  the  investor 
must  expect,  as  the  years  go  on,  to  get  a  lower  rather 

*  "  Railroads  :  Their  Origin  and  Problems,"  C.  F.  Adams  Jr.,  1880. 


48  COM  BIN  A  TION. 

than  a  higher  rate  of  interest  for  the  money  which  he 
locks  up  in  railroads.  In  selecting  his  investments  he  de- 
sires, as  a  matter  of  course,  to  evade  the  consequences  of 
this  systematic  reduction  of  interest  as  far  as  practicable. 
The  economies  which  are  rendered  possible  by  judicious 
combination  will  probably  go  far  towards  effecting  this 
object.  He  will  of  course  have  a  preference  towards 
those  examples  of  combination  which  are  least  liable  to 
speculative  control,  or  to  legislative  or  official  interference 
with  competent  private  management,  and  which  exhibit, 
in  the  most  effective  form,  an  adequate  and  permanent 
representation  of  legitimate  subsisting  interests. 


CHAPTER  V. 

POOLS. 

Our  observer  will  certainly  be  struck  by  the  import- 
ance attaching  to  the  "  Pool  "  in  connection  with  various 
aspects  of  investment.  Concerning  its  moral  status  and  its 
relative  necessity  or  expediency,  he  will  find  abundant  in- 
formation in  current  text-books.  The  question  in  which  he 
is  directly  interested  is  rather  whether  the  creation  of  a 
pool  is  calculated  permanently  to  solve  apparently  insu- 
perable difficulties  arising  between  competing  railroads  of 
which  he  holds,  or  is  disposed  to  acquire,  the  securities ; 
or  whether  the  mere  existence  of  a  pool  contains  for  him 
adequate  reason  for  alarm  or  distrust.  As  in  practical 
business  the  word  is  used  in  a  variety  of  senses,  it  will  be 
proper  to  note  that  the  following  observations  relate  not 
to  any  speculative  or  "  blind  "  pool.  The  objections  to 
which  this  form  of  the  thing  is  liable  are  of  that  general 
kind  which  apply  to  all  forms  of  speculative  control.  The 
pool  referred  to  is  simply  the  expression  of  a  serious 
necessity  which  attends  the  development  of  railroad  en- 
terprise, and  may  be  regarded  as  a  sort  of  convenient 
half-way  house  between  internecine  competition  on  the 
one  hand,  and  wholesale  combination  on  the  other.  Per- 
haps the  most  striking  illustrations  connected  with  the 
subject  may  be  found  in  the  well-known  "  Granger  "  cases, 
and  the  experience  of  the  railroads  affected  by  them. 

A  period  occurred  in  the  history  of  America  when  the 

49 


50  POOLS. 

universal  cry  was  "  Go  West."  Prophets  of  this  doctrine 
took  little  pains  to  determine  how  far  west  the  energetic 
fortune-seeker  should  go,  or  under  what  conditions  as  to 
personal  aptitude  and  accumulated  savings  he  might  fairly 
count  on  a  successful  career.  As  the  wave  of  emigration 
crept  steadily  westward,  and  many  pioneers  attained  sub- 
stantial success,  it  seems  to  have  been  taken  for  granted 
that  the  farther  west  a  man  went  the  better  results  would 
he  obtain,  and  the  shorter  would  be  his  route  to  fortune. 
In  the  case  of  the  miner,  this  forecast  was  often  justified. 
But  in  the  case  of  the  agriculturist  serious  disappointment 
was  in  store.  In  early  days  there  was  an  old-fashioned 
idea  that  it  would  not  pay  to  raise  agricultural  produce 
beyond  a  certain  distance  from  a  market.  This  well- 
founded  notion  was  apparently  discredited  by  a  period  of 
reckless  activity  in  railroad  construction.  Intending 
farmers  settled  in  districts  notoriously  deficient  in  facili- 
ties of  transportation,  apparently  forgetful  of  the  obvious 
certainty  that  no  future  railroad  would  permanently 
consent  to  carry  their  produce  to  market  at  a  loss.  It 
gradually  became  apparent  that,  if  the  farmer  could  not 
obtain  transportation  at  an  extraordinarily  low  rate,  his 
produce  would  not  be  worth  the  cost  of  transportation, 
and  he  would  eventually  go  to  ruin.  But  the  construc- 
tion and  operation  of  a  railroad  postulates  fixed  charges. 
An  existing  railroad  could  not  honestly  be  required  to 
carry  his  produce  to  market  at  a  loss  ;  and,  in  face  of  ex- 
traordinarily low  rates,  railroads  in  the  future  would  not 
be  built  in  his  district.  Under  such  conditions,  it  was 
natural  that  grave  issues  should  arise  between  the  farmers 
who  desired  to  get  a  living,  and  the  railroads  which  were 
built  for  the  purpose  of  making  money.  The  latter  had 
a  right  to  urge  that  their  charters  were  in  fact  contracts  ; 


POOLS.  5 1 

that  they  had  locked  up  vast  sums  of  money  as  a  consid- 
eration for  being  permitted  to  run  their  business  in  their 
own  way,  subject  to  the  fair  interpretation  of  the  law  of 
the  land  ;  that  their  charters  formed  part  of  that  law,  and 
that  it  would  be  a  monstrous  injustice  to  deprive  them  of 
a  large  and  permanent  investment  by  ex  post  facto  confis- 
catory  legislation. 

The  farmers  on  the  other  hand  contended,  roughly 
and  in  effect,  that  the  regulative  power  inherent  in  a 
State  entitled  its  Executive  not  merely  to  prohibit  abuse 
or  to  redress  established  grievances,  but  practically  to 
assume  the  administrative  functions  of  railroad  manage- 
ment, such  as  the  framing  of  rates,  adjustment  of  the  difficult 
problems  of  competition,  and  in  some  instances  even 
limitation  of  dividends  on  stock.  Every  producer,  they 
contended,  should  be  placed  on  precisely  the  same  footing 
as  regards  facilities  and  cost  of  transportation,  whether  he 
lived  far  from  or  near  to  competitive  points,  and  whether 
the  freight  which  he  shipped  was  large  in  quantity  and 
certain  in  point  of  delivery,  or  whether  it  was  small  in 
quantity  and  so  irregular  in  point  of  delivery  as  to  greatly 
multiply  the  expense  and  trouble  of  the  transporting  com- 
pany. 

The  'truth  would  seem  to  be  that  it  is  no  part  of  the 
proper  functions  of  a  railroad  to  review  and  correct,  at  its 
own  expense,  the  errors  in  judgment  committed  by  those 
settlers  who  selected  for  themselves  spheres  of  industrial 
activity  ill-adapted  to  accomplish  the  purposes  of  their 
selectors.  Let  us  suppose  that  A.  has  located  his  farm, 
flour  mill,  or  lumber  mill  with  genuine  insight  into  the 
physical  conditions  which,  in  the  natural  growth  of  the 
country,  tend  to  ensure  success — (e-g.\  his  enterprise  is 
located  within  measurable  distance  of  water  transporta- 


52  POOLS. 

tion.  It  is  also  near  a  railroad  junction,  which  promises 
to  become  a  competitive  point  of  substantial  importance. 
He  is  plainly  entitled  to  the  credit  of  his  forecast — that 
the  conditions  of  transportation  will  be  permanently 
favourable  to  his  enterprise,  and  to  the  benefits  derivable 
therefrom.  Let  us  suppose  that  B.  has  selected  a  site  for 
his  farm  or  mill  very  remote  from  water  carriage  and 
from  a  competitive  railroad  point.  It  is  possible  that  a 
branch  railroad  may  be  built  sufficiently  near  to  give  him 
a  modest  chance  of  limited  railroad  facilities.  But  to  in- 
duce a  constructing  company  to  build  such  a  branch  line 
is  by  no  means  easy.  Perhaps  the  free  grant  of  the  right 
of  way,  and  of  a  block  of  land  amply  sufficient  for  depot 
accommodation  wherever  a  depot  may  be  required,  a 
subsidy  or  subscription  from  villages  or  small  towns  on 
the  route,  and,  lastly,  a  high  rate  for  passengers  and 
freight,  may  induce  a  speculative  or  sanguine  company  to 
build  the  branch  or  extension  under  consideration.  It  is 
probably  constructed  with  reluctance,  and  its  operation  is 
attended  with  loss.  After  it  is  built,  but  emphatically  not 
before,  B.  discovers  that  A.,  with  the  advantages  of  prox- 
imity to  water  carriage  and  a  competitive  point,  can  reach 
a  market  on  better  terms  than  he  (B.)  can  ;  and  he  taxes 
railroads  generally  with  unjust  discrimination.  In  other 
words,  he  would  like  the  railroad  to  shoulder  the  unfor- 
tunate results  of  his  defective  judgment.  It  is  impossible 
to  convince  him  that  A.  is  well  placed,  because  he  correctly 
interpreted  the  situation,  and  that  he  (B.)  is  ill  placed, 
simply  because  he  failed  to  do  so.  Why  should  a  rail- 
road company  be  expected  to  compensate  out  of  its  own 
pocket  any  difference  in  point  of  business  capacity  that 
may  exist  between  A.  and  B.  ?  If  a  railroad  be  not  bound  to 
do  so,  it  follows,  as  a  logical  consequence,  that  it  is  no  part 


POOLS.  53 

of  the  functions  of  a  State  to  compel  it  to  do  so.  The  obli- 
gation of  the  State  to  compel  a  railroad  to  undertake  gratu- 
itous and  costly  experiments  necessarily  falls  to  the  ground, 
if  the  duty  of  the  railroad  in  that  behalf  be  disproved. 
But  the  champions  of  the  "  Granger "  movement  could 
not  be  convinced  of  the  absolute  necessity,  not  to  say  ex- 
pediency, imposed  on  railroad  administrators  of  charging 
such  rates  as  traffic  would  bear. 

One  school  contended  earnestly  for  the  theory  that  all 
freight  should  be  charged  on  an  absolute  basis  of  mileage, 
ignoring  the  certainty  that,  under  such  conditions,  a 
railroad  could  not  efficiently  conduct  its  "way"  and 
"through"  business,  without  incurring  the  penalty  of 
starvation.  If  its  competitive  rates  were  raised  to  the 
level  of  its  local  rates,  it  would  of  course  lose  its  com- 
petitive business.  If,  on  the  other  hand,  it  reduced 
its  local  rates  to  the  level  of  its  competitive  rates,  it 
could  earn  no  income  sufficient  to  keep  it  from  insolvency. 
Another  school  contended  for  rates  based  on  cost  of  ser- 
vice, overlooking  the  consideration  ably  pointed  out  by 
Prof.  Hadley  in  his  excellent  work  on  transportation, 
that  such  a  course  could  not  permanently  tend  to  the 
steady  and  systematic  reduction  of  rates.  All  freight 
moved  on  the  basis  of  the  cost  of  service  must  bear  its 
pro  raid  of  fixed  charges.  Suppose  the  fixed  charges 
are  honestly  and  inevitably  heavy.  The  result  is  obvious : 
If  in  America,  where  fixed  charges  are  often  unduly  bur- 
densome, this  basis  had  been  universally  adopted,  rates 
would  have  ranged  much  higher  than  is  the  case  to-day. 
A  third  school  thought  the  true  remedy  lay  in  the  defi- 
nition by  Railroad  Commissioners  of  reasonable  rates. 
But  experience  only  repeated  itself,  and  plainly  showed 
that  technical  problems,  which  have  for  years  defied  solu- 


54  POOLS. 

tion  at  the  hands  of  the  ablest  experts,  could  not  so  lightly 
be  disposed  of  by  less  adequately  trained  Government 
officials. 

From  the  poverty  of  the  agriculturists  who  settled  too 
far  from  their  market  arose,  to  a  great  extent,  the  embar- 
rassment of  numerous  Western  railroads  with  which  the 
foreign  investor  has  a  painful  familiarity.  As  time  went 
on,  many  of  these  smaller  roads  recognized  that  their  sole 
chance  of  salvation  must  be  sought  in  combination  ;  and, 
in  isolated  instances,  arrangements  favourable  to  the  inves- 
tors in  the  absorbed  lines  were  eventually  made.  But, 
while  the  consolidation  of  isolated  lines  into  large  organi- 
zations was  probably  beneficial  to  the  country,  it  tended 
to  define  and  sharpen  the  lines  of  competition  between 
the  larger  systems.  To  state  the  result  shortly,  several 
East  and  West  lines,  fairly  compact  in  external  form,  but 
varying  greatly  in  prospective  value  and  organic  symmetry, 
became  very  keen  competitors  for  East  and  West  trade. 
To  include  them  all  in  one  gigantic  combination  was 
obviously  impracticable,  their  financial  history,  intrinsic 
merits,  future  prospects,  and  modes  of  administration 
being  not  sufficiently  homogeneous.  To  fight  out  the 
competitive  battle  to  its  logical  conclusion  could  only 
result  in  starving  them  all.  So  the  pool  was  devised, 
as  a  modus  vivendi,  by  which  business  which  could  not 
give  a  profit  to  all  should  still  be  so  distributed  as  to  give 
something  to  each.  The  basis  of  distribution  differed 
from  time  to  time,  and  as  a  matter  of  course  there  were 
always  to  be  found  dissatisfied  parties.  But,  as  between 
the  railroads  and  the  public,  the  result  was  on  the  whole 
beneficial.  Stability  of  rates  is,  from  the  point  of  view  of 
the  trading  public,  second  only  in  importance  to  lowness 
of  rates.  And,  if  this  result  could  be  consistently  main- 


POOLS.  55 

tained,  practical  railroad  men  would  see  no  insuperable 
objection  to  pools. 

On  the  other  hand,  it  must  be  borne  in  mind  that 
there  is  no  pool  without  a  leak.  Although  the  trunk- 
line  pools  in  this  country  have  been  greatly  helped  by 
the  immense  ability  and  exhaustive  knowledge  of  Mr. 
Fink,  experience  shows  the  enormous  difficulty  of  keep- 
ing fairly  in  hand  such  a  vast  mass  of  conflicting  inter- 
ests. The  truth  is  that,  comparing  mileage  with  tonnage 
and  practicable  rates  throughout  the  year,  there  is  not 
enough  to  go  round  so  as  to  satisfy  everybody.  The 
stronger  company  reasonably  contends  that  a  pool  is  de- 
vised for  the  benefit  of  the  weaker.  But  it  is  an  incident 
of  weakness  to  fail  in  seeing  ourselves  as  others  see  us  ; 
and,  if  the  weak  ask  too  much,  the  strong  are  driven  to 
rely  on  their  own  force,  and  to  adopt  an  independent  policy. 
If  in  a  trunk-line  pool  all  parties  could  agree  to  abide  by 
the  decision  of  an  extraordinarily  able  Commissioner,  and 
recognize  that  two  and  two  make  four,  it  is  probable  that 
the  success  of  pools  in  this  country  'would  be  assured. 
But,  if  they  are  of  opinion  that  two  and  two  make  seven, 
their  arbitrator,  however  able  and  honest,  must  neces- 
sarily have  an  up-hill  game. 

•  So  long  as  our  observer  takes  note  of  the  practical  re- 
lation which  a  pool  bears  to  the  securities  in  which  he 
proposes  to  invest,  he  will  find  no  difficulty  in  protecting 
his  money ;  and  he  may  leave  the  theoretical  merits  or 
demerits  of  the  modern  pool  to  the  exponents  of  political 
economy  and  railroad  administration.  He  will  probably 
conclude  that  the  necessity  for  a  pool  indicates  a  certain 
amount  of  weakness  somewhere,  and  that  this  weakness  is 
most  likely  to  make  itself  severely  felt  in  the  experience 
of  the  feebler  corporations. 


CHAPTER  VI. 

WATER. 

MUCH  has  been  written  about  the  ethics  of  stock- 
watering,  and  from  this  point  of  view  the  subject  has 
been  pretty  well  threshed  out.  But  its  effect  on  invest- 
ment has  produced  such  serious  results  that  it  may  be 
thought  to  deserve  a  short  notice. 

Let  us  suppose  that  a  going  concern  finds  itself  in  a 
position  to  earn  15  or  16  %  on  the  capital  invested.  The 
first  impulse  of  its  managers  will  probably  be  to  observe 
strict  reticence  on  the  subject  of  its  profits.  To  advertise  or 
publish  them  without  reserve  would  be  to  directly  in- 
vite the  investment  of  new  capital  in  the  same  field,  and 
to  produce  serious  and  possibly  ruinous  competition.  A 
ready  solution  of  the  difficulty  presents  itself.  If  the 
capital  on  which  dividend  is  paid  be  doubled,  and  the  new 
stock  issued  to  the  original  shareholders,  instead  of  paying 
15  %  on  (say)  $10,000,000,  it  will  pay  7^  %  on  $20,000,000. 
Now,  if  there  existed  any  law  which  restricted  the  amount 
of  dividend  payable  on  a  going  concern,  this  process 
would  obviously  be  a  fraud  as  against  the  law  which 
created  such  restriction.  But  suppose  no  such  law  exists 
in  a  given  case,  the  infusion  of  water  becomes  a  question 
of  commercial  or  corporate  tactics.  The  managers  of  an  in- 
dustrial enterprise  do  not  profess  to  be  philanthropists.  If 
they  can  make  a  large  profit  without  transgressing  the 
law  of  the  land,  it  is  their  business  to  do  so  in  the  interest 

56 


WATER,  57 

of  their  shareholders.  If  a  railroad  board  can  distribute 
large  dividends,  their  interest  in  the  public  is  necessarily 
subordinate  to  their  interest  in  their  own  corporation. 
They  may  properly  contend  that  all  the  features  of  their 
organization — adjustment  of  their  capital,  status  of  their 
funded  debt,  mode  of  administration,  distribution  of 
profits  etc. — are  all  parts  of  a  mechanism  which  is  not  an 
end  in  itself,  but  a  means  to  an  end.  The  ultimate  assets 
owned  by  the  company  are  neither  increased  nor  dimin- 
ished by  the  infusion  of  water.  But  its  component  parts 
are  expressed  or  represented  on  paper  in  different  terms. 
It  may  be  that  the  holders  of  $20,000,000  of  stock  paying 
7|-  %  dividend  can  do  better  with  it  on  the  market  than 
with  $10,000,000  of  stock  paying  \$%.  If  the  administra- 
tion be  honest  and  conservative,  the  infusion  of  water  will 
not  interfere  with  the  productiveness  of  the  concern.  If 
it  be  speculative  and  adventurous,  more  frequent  and  lib- 
eral opportunities  will  occur  for  the  manipulation  of  finan- 
cial coups.  To  take  a  well-known  instance  :  before  the  im- 
mense infusion  of  water  into  the  N.  Y.  Central  system,  it 
was  plainly  earning  an  enormous  dividend  on  the  capital 
invested.  Even  after  the  infusion  of  100  %  of  water,  it 
paid  such  large  dividends,  and  was  such  a  strong  and 
flourishing  concern,  that  the  projectors  of  the  West  Shore 
Railroad  were  tempted  to  scramble  for  a  part  of  the 
profits,  and  were  willing  to  spend  a  good  deal  of  money 
for  the  exercise  of  that  privilege.  Whatever  may  have  been 
the  moral  or  social  merits  of  the  late  Commodore  Vander- 
bilt's  coup,  there  can  be  no  doubt  whatever  that  the  stock- 
holders of  the  railroad  did  not  eventually  lose  thereby. 
So  active  is  the  desire  of  keen  trading  communities  to 
transfer  capital  from  fading  industries  to  those  which  ap- 
pear to  be  unusually  remunerative,  that  the  owners  of 


58  WATER. 

very  profitable  going  concerns  hold  their  tongues  about 
their  profits  till  they  are  ready  to  sell  out  to  a  joint-stock 
company.  It  is  not  the  morality  of  stock  watering  to 
which  our  observer  will  address  himself,  but  rather  the 
numerous  disguises  to  which  it  gives  occasion,  and  the 
disastrous  mistakes  which  it  invites  and  promotes.  Mil- 
lions of  dollars  have  been  invested  on  foreign  account  in 
American  railroads  under  conditions  which  excited  the 
amazement  and  mirth  of  the  native  investor.  During  one 
period  of  great  "  inflation,"  it  seemed  as  if  a  liberal  infu- 
sion of  water  rather  increased  than  diminished  the  value 
of  shares  which  were  unloaded  on  Europe. 

To  determine  with  any  thing  like  precision  what  rela- 
tion nominal  capital  bears  to  capital  actually,  honestly, 
and  economically  invested  in  a  concern  is  perhaps  too  seri- 
ous an  undertaking  for  the  ordinary  investor.  Life  is  not 
long  enough,  nor  opportunities  for  searching  investigation 
sufficiently  accessible,  to  render  such  exhaustive  research 
feasible.  But,  in  a  superficial  survey  of  American  rail- 
roads, many  instances  occur  of  so  striking  and  unmistak- 
able significance,  that  very  cursory  observation  may  suffice 
to  prevent  the  more  serious  class  of  mistakes.  If  a  rail- 
road company,  which  has  honestly  expended  (say)  $25,- 
000,000  and  has  a  road  worth  (say)  $30,000,000  to-day, 
expects  to  provide  for  an  indebtedness  of  (say)  $50,000,000 
or  $60,000,000,  paying  a  fair  rate  of  interest,  (say)  4%%,  it 
can  only  do  so  on  the  assumption  that  it  does  now  earn, 
and  will  continue  hereafter  to  earn,  some  9  %  on  capital 
really  invested.  The  signs  of  the  times  distinctly  tend  to 
show  that  such  a  result  is  improbable  in  the  last  degree. 
Great  as  have  been  the  benefits  conferred  on  the  public 
by  the  constructors  of  railroads,  the  public,  which  they 
have  served  well  and  in  the  face  of  immense  risks,  will  not 


WA  TER.  59 

pay  them  at  anything  like  the  rate  of  g%  or  10%  for  the 
capital  which  they  have  invested  and  the  services  which 
they  perform.  If  the  public  will  not  permanently  pay  in- 
terest on  "  water,"  the  investor  will  do  wisely  to  take  this 
circumstance  into  account.  As  it  may  properly  be  asked, 
what  indications  in  this  direction  are  afforded  by  the  railroad 
situation  of  to-day,  the  answer  is  not  far  to  seek.  Amongst 
other  leading  facts,  may  be  mentioned  the  drift  of  State 
legislation  ;  the  institution  and  expressed  views  of  Rail- 
road Commissioners ;  the  tendency  of  the  people  to  re- 
gard railroad  charters  as  benefits  conferred  on  construct- 
ing companies,  rather  than  as  unfortunate  bargains  on 
the  part  of  the  grantees ;  and  the  tendency  of  the  courts 
to  push  beyond  its  legitimate  limits  the  regulative  power 
of  State  Legislatures  and  of  Congress. 


CHAPTER    VII. 

PARALLEL     LINES. 

THE  occasional  practice  of  building  new  lines  roughly 
parallel  and  in  unduly  close  proximity  to  existing  and 
successful  old  lines  will  possibly  attract  our  enquirer's 
notice,  if  only  because  it  throws  light  on  the  value  and 
incidents  of  American  State  charters.  The  language  of 
a  great  number  of  subsisting  State  charters  is  satisfactory, 
and  there  is  no  doubt  about  the  validity  either  of  the  com- 
pulsory powers  conferred  thereby,  or  of  the  rights  acquired 
thereunder  by  contracting  parties.  But  it  is  possible  to 
read  and  interpret  them  in  the  light  rather  of  English 
parliamentary  practice  than  of  the  procedure  and  environ- 
ment of  American  State  Legislatures,  and  such  a  course 
would  certainly  lead  to  misconception. 

As  everybody  knows,  a  company  applying  to  Parlia- 
ment for  an  act  to  construct  its  railway  must  prove  the 
preamble  of  its  bill;  or,  in  short,  make  out  a  case  suf- 
ficient, in  the  opinion  of  the  Committees,  to  justify  the 
grant  of  compulsory  powers.  Parliament  distinctly  ob- 
jects to  permit  interference  with  the  rights  of  private  prop- 
erty, unless  the  existence  of  a  public  need  be  proved  to 
its  satisfaction  ;  not  merely  or  mainly  because  certain 
forms  of  competition  may  be  unnecessary  or  superfluous, 
but  on  the  reasonable  grounds  that  the  rights  of  private 
owners  of  property  ought  not  to  be  lightly  interfered  with, 
in  default  of  a  public  need,  and  for  the  mere  purpose  of 

6p 


PARALLEL  LINES.  6 1 

helping  a  knot  of  speculators  to  make  money.  It  follows 
that,  if  an  act  be  obtained  authorizing  the  construction  of  a 
railway  through  any  given  district  in  England,  and  the  en- 
terprise is  usefully  and  successfully  conducted,  it  would  be 
futile,  in  the  last  degree,  for  a  new  combination  to  apply 
to  Parliament  for  power  to  build  a  railway  alongside  of 
it.  Such  new  combination  could  not  prove  the  exist- 
ence of  a  real  public  need  ;  it  would  break  down  in  prov- 
ing the  preamble  of  its  bill.  But,  in  the  case  of  American 
enterprises,  we  have  to  deal  with  a  different  set  of  local 
conditions  and,  as  a  corollary,  with  a  different  mode  of 
legislative  procedure.  In  America,  outside  of  the  mem- 
bers of  an  old  and  successful  railroad  corporation,  there 
is  scarcely  such  a  thing  as  an  opponent  to  the  construc- 
tion of  a  new  railroad.  Property-owners  of  every  descrip- 
tion welcome  its  advent.  The  trader,  because  it  gives 
additional  facilities  for  the  transportation  of  the  pro- 
duce which  he  handles.  The  land-owner,  because  it  mul- 
tiplies indefinitely  the  value  of  the  balance  of  his  land. 
The  professional  man  or  casual  resident,  because  it  econo- 
mizes his  wear  and  tear  in  covering  the  long  distances 
incident  to  his  life.  The  right  of  way  can  often  be  ob- 
tained for  the  asking,  without  compensation,  or  at  the 
most  a  very  trifling  compensation  in  cases  where  dis- 
turbance amounts  to  positive  inconvenience.  In  thinly 
populated  districts  the  location  of  a  station  near  partic- 
ular hamlets  or  large  farms  is  so  eagerly  desired  that  the 
free  grant  of  a  substantial  number  of  acres  is  frequently 
offered.  Townships  or  even  hamlets  on  the  line  of  a 
projected  railroad  are  generally  willing  to  subscribe  some- 
thing towards  its  construction.  Members  of  Legislatures 
have  no  inducement  to  oppose  the  wishes  of  their  con- 
stituents. Practical  shrewdness  convinces  all  the  natives 


62  PARALLEL  LINES. 

that  they  have  every  thing  to  gain,  and  nothing  to  lose 
by  the  construction  in  their  State  of  a  new  railroad. 
Money  will  be  freely  spent  during  the  period  of  construc- 
tion, and  will  be  absorbed  by  local  circles.  If  the  enter- 
prise is  successful,  the  whole  neighbourhood  will  be  bene- 
fitted,  and  the  taxable  property  of  the  State  will  be  in- 
creased. If  it  fails  or  is  abandoned  in  a  half-finished 
condition,  the  unfortunate  constructing  company  cannot 
carry  away  bridges  or  tunnels  in  its  pocket.  The  wreck 
will  hereafter  be  bought  up  cheaply,  and  utilized  by  some 
local  combination.  It  follows  that  a  State  Legislature  has 
no  inducement  to  insist  that  a  company  applying  for  a 
charter  shall  prove  the  preamble  of  its  bill  in  the  technical 
English  sense  of  the  term.  If,  therefore,  a  new  combina- 
tion at  anytime  desires  to  "parallel  "  an  old  and  subsisting 
railroad,  there  has  heretofore  existed  no  serious  obstacle 
to  the  execution  of  its  project,  except  such  as  may  be 
found  to  exist  in  the  financial  risks  and  difficulties  in- 
herent in  every  such  enterprise.  It  is  unnecessary  here  to 
particularize  the  results  of  recent  experiments  in  this 
direction.  It  is  plain  however  that,  to  justify  so  bold  a 
a  game,  a  new  combination  must  hold  a  very  strong  hand  ; 
and  it  needs  a  good  deal  of  judgment  to  appraise  relative 
strength  to  a  nicety.  The  new  combination  may  possess 
large  means ;  but  it  may  also  turn  out  that  the  old  and 
successful  road  against  which  the  effort  is  directed  is 
stronger  still.  If,  for  instance,  the  old  company's  profits 
are  so  large  and  unvarying  as  to  justify  a  large  expendi- 
ture in  order  to  compete  for  a  slice  of  its  income,  it  is 
very  possibly  strong  enough  to  starve  the  new  undertak- 
ing. Even  granting,  for  argument's  sake,  that  the  rivalry 
of  the  new  organization  is  very  formidable,  and  it  feels 
3ure  of  eventually  compelling  the  absorption  of  its  new 


PARALLEL  LINES.  63 

enterprise  by  the  old  company,  the  question  inevitably 
arises,  on  what  terms  can  the  absorption  be  compelled, 
and  is  the  game,  as  a  net  result,  worth  the  candle  ?  To- 
day, as  of  old,  it  is  prudent  to  consider  whether  a  board 
with  ten  thousand  can  meet  him  that  cometh  against  it 
with  twenty  thousand.  Possibly  our  enquirer  will  be 
right  in  considering  that  the  compulsory  absorption  of  un- 
necessary lines  virtually  amounts  to  the  creation  of  new 
capital,  which  is  not  desirable,  in  view  of  the  canons  of 
political  economy,  and  he  will  shape  his  course  accordingly. 


CHAPTER   VIII. 

REORGANIZATION. 

WHEN  a  cynic  remarked  that  "  fools  build  houses  for 
wise  men  to  live  in,"  he  was  understood  to  mean,  in  ref- 
erence to  railroad  enterprise,  that  the  resuscitation  of 
wrecked  property  often  gives  better  results  to  the  investor 
than  the  construction  of  brand  new  lines.  A  very  cur- 
sory observation  of  the  history  of  American  railroads  will 
probably  satisfy  our  observer  that  the  utterance  above 
cited  is,  at  best,  only  a  half  truth  ;  but  that  still  the  cynic 
probably  knew  what  he  was  talking  about.  He  will  find 
no  lack  of  instances  in  point.  The  most  salient  and  im- 
pressive are  cases  in  which  a  new  railroad  has  been,  in  the 
main,  well  conceived.  Let  us  suppose  that  the  importance 
of  its  terminal  points  has  been  considered.  Its  relations 
to  lines  which  it  intersects,  or  with  which  it  may  hereafter 
make  more  intimate  and  direct  connection,  have  not  been 
overlooked.  The  volume  of  trade  in  a  given  direction 
and  through  a  given  channel,  with  fair  presumption  in 
favour  of  quantity  and  permanence,  has  been  taken  into 
account.  Constructive  work  of  good  quality  has  been 
accomplished — (e.  g.)  expensive  grading  and  here  and  there 
costly  bridges  and  structures  of  permanent  value.  But 
on  a  promising  beginning  has  supervened  a  financial  panic, 
or  a  period  of  hard  times,  or  disunion  of  shareholders, 
or  some  speculative  complication.  Construction  is  at 
first  temporarily  suspended,  and  after  a  time  abandoned 

64 


REORGANIZA  TfOtf.  6$ 

sine  die.  The  ordinary  incidents  of  receivership,  fore- 
closure etc.  follow.  As  time  goes  on  the  outlook  affords 
little  hope  of  any  available  income  or  profit  to  the  share- 
holders. Still  a  great  deal  of  money  has  been  sunk,  and 
to  write  this  off  without  an  effort  would  seem  to  be  a 
somewhat  tame  solution  of  the  difficulty.  Many  meet- 
ings are  held,  and  generally  the  smallest  stockholders  are 
the  most  eloquent  and  positive.  The  result  is  reorganiz- 
ation in  a  form  which  gives  control  of  the  concern  to  the 
men  who  provide  the  new  capital.  Now,  assuming  that  a 
railroad  was  in  the  first  place  fairly  well  conceived,  and 
has  been  brought  within  measurable  distance  of  comple- 
tion on  a  basis  of  (say)  $25,000  per  mile,  a  new  combina- 
tion or  syndicate  cannot  hurt  themselves  very  seriously  if 
they  see  their  way  to  acquire  the  enterprise  on  a  basis  of 
(say)  $10,000  per  mile.  The  advantage  accruing  to  the 
new  syndicate  is  not  confined  to  the  mere  pecuniary 
cheapness  of  the  acquisition.  They  succeed  gratis  to  a 
vast  aggregate  of  valuable  experience  for  which  their 
predecessors  paid  highly.  They  know  more  about  the 
general  and  local  possibilities  and  the  correlative  draw- 
backs of  the  enterprise  than  their  predecessors  could 
possibly  know  at  the  outset,  and  they  get  this  knowledge 
without  paying  value  received  for  it.  On  the  whole, 
resuscitation  appears  a  more  comfortable  theory  than 
creation,  and  results  are  often  found  to  justify  this  forecast. 
On  general  principles  then  our  observer  will  not  be 
deterred  from  investing  in  reorganized  concerns  by  the 
mere  fact  that  their  past  history  has  been  disastrous.  He 
will  make  a  few  superficial  enquiries  which  may  be  neces- 
sary for  his  protection,  the  answers  to  which  will  readily 
occur.  For  instance,  he  will  note  as  a  matter  of  course 
the  amount  of  good  money  honestly  expended  on  the 


66  &&ORGANIZA  T10N. 

property,  as  distinguished  from  outlay  incurred  through 
intermediate  construction  companies,  extravagant  tem- 
porary loans,  and  other  complex  financial  arrangements ; 
its  relation  to  the  new  capital  proposed  ;  the  probabilities 
of  reasonably  prompt  completion,  and  therefore  produc- 
tiveness within  a  measurable  limit  of  time  ;  and  the  nature 
and  extent  of  the  control  proposed  to  be  given  to  the 
persons  providing  the  new  capital.  Next,  it  may  be  worth 
his  while  to  enquire  how  often  and  to  what  extent  an 
embarrassed  railroad  which  it  is  intended  to  resuscitate 
has  done  duty  as  a  factor  in  prior  reorganizations.  He 
will  note  that,  in  many  great  combined  schemes,  there 
have  been  several  weak  and  comparatively  worthless 
sections  of  line  which  were  intrinsically  and  of  their  own 
nature  destined  to  insolvency.  With  a  really  clever 
clique  of  capitalists  possessing  large  means  and  influence 
at  the  helm,  this  circumstance  has  in  many  instances 
presented  no  insuperable  obstacle  to  the  ultimate  manip- 
ulation of  a  great  coup,  involving  the  unloading  of  worth- 
less securities  on  European  investors.  Again  a  wrecked 
line,  well  conceived  at  the  outset  and  intercepted  in  its 
career  of  success  by  panic  or  accident,  may  have  been 
employed  as  a  serviceable  stalking-horse,  and  its  attrac- 
iveness  already  exhausted.  For  instance,  after  it  has 
been  bought  up  cheaply,  the  trumpet  is  freely  blown  and 
a  lively  tune  is  played  on  the  theme  of  its  intrinsic  merits. 
It  is  now-  once  more  warranted  to  carry — almost  exclu- 
sively— the  vast  business  of  (let  us  say)  the  far  West  to  the 
Eastern  seaboard.  Once  more  the  unspeakably  wealthy 
districts  which  it  will  "  tap  "  are  indicated  on  an  appro- 
priate map.  The  dense  black  line  on  this  map,  which 
indicates  the  route  of  the  new  figure-head  portrays,  with 
its  new  connection,  a  line  so  nearly  straight,  or  (in  the 


REORGANIZATION.  67 

current  argot)  is  so  nearly  a  "  bee-line,"  that  one  marvels 
how  it  can  be  possible  that  a  single  ton  of  freight  should 
go  by  any  other  route.  It  will  be  enough  for  our  observer 
to  compare  this  dense  black  line  with  the  ordnance  map  of 
the  United  States.  This  will  possibly  give  him  some  new 
impressions  on  the  subject. 

In  connection  with  the  "  tapping "  business,  it  may 
occur  to  him  to  enquire  whether  this  process  has  not 
been  repeatedly  performed  on  the  favoured  district  dur- 
ing the  last  few  years.  He  may  perhaps  reflect  that, 
while  "  tapping  "  is  essentially  a  festive  process,  it  makes 
all  the  difference  to  a  thirsty  man  whether  the  barrel  is 
full  or  empty.  He  will  also  do  well  to  enquire  what  are 
the  incidents  of  recent  receivership.  These  sometimes 
make  serious  calls  on  the  resources  of  a  demoralized  road. 
The  annals  of  receivership  record  enormous  claims  for 
compensation  of  receivers, — among  the  largest  being  in  a 
heavy  case  $750,000  for  seven  months'  service.  Our 
enquirer  will  be  disposed  to  prefer  systems  which,  if 
they  cannot  pay  a  dividend,  are  somewhat  more  economi- 
cal in  their  view  of  the  compensation  likely  to  be  claimed 
for  official  service. 

It  will  sometimes  occur  that  a  relatively  heavy 
assessment  on  the  stock  of  a  distressed  railroad  is  pro- 
posed. Our  enquirer,  if  he  hold  such  stock,  will  do  well 
to  consider  a  proposal  of  this  kind  somewhat  carefully. 
It  may  of  course  be  worth  while  to  protect  his  stake  in 
the  concern  by  paying  the  amount  required.  But  he  will 
bear  in  mind  that,  in  a  large  majority  of  cases,  the  stock 
which  he  is  asked  to  protect  really  represents,  not  actual 
outlay,  but  a  contingency  dependent  on  the  net  earnings 
of  the  railroad  over  and  above  working  expenses  and  fixed 
interest  on  the  bonds  by  means  of  which  the  road  itself 


68  REORGAN1ZA  TION. 

was  built.  It  may  be  that  the  value  of  the  stock  is  purely 
speculative  ;  useful  for  the  purposes  of  the  "  Street,"  but 
of  little  merit  so  far  as  the  chance  of  a  dividend  is  con- 
cerned. Again,  the  destination  of  the  money  to  be  raised 
by  assessment  is  worth  attention.  If  it  is  to  be  strictly 
devoted  to  urgent  repairs,  improved  equipment  or  the 
like,  the  investment  may  be  worth  making.  If  it  is  to 
be  appropriated  to  the  acquisition  of  speculative  property, 
or  to  the  protection  or  development  of  collateral  assets,  a 
single  assessment  will  not  permanently  stop  formidable 
gaps ;  and  the  process  of  taxing  shareholders  may  be  re- 
peated at  an  unexpectedly  short  interval.  The  privilege 
of  holding  unproductive  stock  on  the  terms  of  assessment 
recurring  at  short  periods  may  be  somewhat  too  costly. 

Per  contra,  the  submission  to  assessment  by  stock- 
holders may  sometimes  enable  them  to  greatly  strengthen 
their  position  by  suitable  arrangements  with  the  holders 
of  junior  funded  securities.  The  stockholder,  who  has 
ready  money  wherewith  to  meet  a  real  emergency,  may 
see  his  way  to  greatly  fortify  his  position  in  a  reorganiza- 
tion. The  possession  of  cash,  and  the  courage  to  invest 
St  at  a  time  of  need,  clothes  him  with  special  importance 
and  power.  No  doubt  the  owners  of  prior  securities  hold 
the  fortress  and  the  big  guns.  But,  in  a  period  of  emer- 
gency, the  owner  of  ready  money  controls  the  ammunition. 
He  is  a  very  useful  man  in  view  of  an  immediate  fight. 
If  the  resuscitated  railroad  has  already  done  duty  as  a 
figure-head  in  one  or  two  combinations  which  have  re- 
sulted disastrously,  the  observer  will  be  disposed  to  ex- 
tend his  enquiries  somewhat  more  closely  to  the  actual 
duty  which  it  is  at  the  moment  called  on  to  perform. 
Perhaps  it  may  be  incorporated  in  a  new  combination  to 
facilitate  the  floating  of  a  "  blanket  "  mortgage.  It  is 


REORGANIZA  T10N.  69 

very  commonly  an  incident  of  a  "  blanket  "  mortgage 
that  it  covers  under  its  ample  folds  one  good  section  of 
line  and  several  bad  ones.  If  such  a  case  should  come 
under  his  notice,  and  he  is  the  holder  of  sectional  bonds 
of  the  sound  portion  of  the  proposed  combination,  he  will 
do  well  to  stick  to  them  for  the  present.  He  need  not  be 
afraid  of  further  investment,  because  it  is  probably  very 
desirable  to  the  holders  of  a  great  number  of  weak  securi- 
ties to  float  a  "blanket"  mortgage;  and  the  holders  of 
bonds  of  the  sound  section  are  virtually  masters  of  the 
position.  If  they  have  ready  money  besides,  they  should 
control  the  reorganization  and  have  things  pretty  much 
their  own  way.  No  very  deep  or  close  enquiry  is  necessary 
to  guide  our  observer  in  determining  and  identifying  those 
cases  in  which  the  lemon  has  been  squeezed  dry.  Finan- 
ciers have  made  several  coups  in  them  already.  The  most 
speculative  think  they  will  not  pay  for  another  squeeze ; 
and  the  confidence  of  the  foreign  investor  is  already  well- 
nigh  exhausted. 

Superficial  enquiries  of  the  kind  indicated  above  tend 
to  prevent  some  of  the  most  familiar  and  disappointing 
forms  of  investment  in  resuscitated  American  railroads. 
They  may  equally  tend  to  indicate  that  resuscitation,  re- 
organization and  combination  with  new  elements  are  not, 
by  any  means,  necessarily  prohibitory  factors  in  connec- 
tion with  projected  investments. 


CHAPTER  IX. 

PROXIES. 

AMONGST  other  obvious  conditions  which  have  made 
speculative  control  possible,  our  enquirer  can  scarcely  fail 
to  be  struck  by  the  circumstance  that,  in  the  past,  there 
existed  a  remarkable  divorce  between  the  possession  of 
stock  and  the  voting  power  properly  incident  thereto.  It 
is  of  course  true  that  some  fifteen  or  twenty  years  ago 
there  was  not  the  same  craze  for  direct  representation  in 
every  department  of  life  or  business  which  characterizes 
the  life  and  politics  of  to-day.  But  it  will  strike  him  as  a 
strange  thing  that  one  set  of  people  should  have  paid  for 
and  own  the  stock  of  a  railroad  company,  and  that  the 
voting  power  should  be  retained  by  Directors  who,  by 
virtue  of  that  very  fact,  would  have  the  option  of  running 
a  railroad  in  the  interest  of  a  speculative  clique,  instead  of 
in  the  interest  of  its  real  owners.  The  injury  which  in 
the  past  has  accrued  to  foreign  investors  from  the  exist- 
ence of  this  system  of  course  admits  of  degrees,  accord- 
ing to  the  circumstances  of  each  particular  case.  But,  in 
very  extreme  instances,  the  results  have  been  in  different 
aspects  both  disastrous  and  ridiculous.  Take,  for  in- 
stance, the  case  of  the  Erie  Road  in  the  palmy  days  of 
the  notorious  Erie  Ring.  A  corrupt  Legislature  at  Albany 
controlled  by  Mr.  Tweed  and  his  friends  had  passed  the 
Erie  Classification  Act,  by  virtue  of  which  only  a  small 
proportion  of  the  Directors  could  be  retired  at  annual  elec- 

70 


PROXIES.  /I 

tions,  thus  leaving  the  power  incident  to  a  majority  chron- 
ically vested  in  a  compact  and  highly  organized  party. 
Now  it  happened  that  the  Company  had  no  power  to  issue 
directly  an  unlimited  amount  of  new  stock  at  the  dis- 
cretion of  Directors,  who  might  for  any  reason  desire 
to  water  the  capital.  But,  by  the  manipulation  of  a 
power  vested  in  the  corporation,  it  was  permissible  to 
issue  bonds  convertible  into  stock  ;  and  this  power,  from 
the  point  of  view  of  the  Ring,  was  sufficient  for  all  prac- 
tical purposes.  The  mode  of  procedure  was,  on  an  elec- 
toral emergency,  to  issue  (say)  five  or  ten  millions  of  dol- 
lars of  convertible  bonds ;  next  to  convert  them  into 
stock,  and  then  to  leave  the  stock  standing  in  the  name 
of  one  or  more  of  the  Directors  or  their  brokers  or  agents. 
The  certificates  were  sold  upon  the  "  Street  "  at  a  nominal 
price,  and  passed  from  hand  to  hand.  But,  if  presented 
for  transfer,  they  were  retained  in  the  office  of  the  Com- 
pany under  the  pretext  of  "  verification  "  etc.,  until  the 
election  in  view  of  which  the  new  stock  was  issued  had 
passed.  Of  course,  for  the  purposes  of  the  immediately 
pending  election,  the  voting  power  was  vested  in  the 
Director,  broker  or  agent  in  whose  name  the  stock  stood 
on  the  books  of  the  Company.  Purchasers  of  the  stock 
certificates,  having  been  precluded  from  obtaining  transfer 
till  after  the  election,  were  altogether  out  of  the  hunt. 
The  party  in  control  of  course  voted  on  the  stock  thus 
detained  for  "  verification,"  and  equally  of  course  voted 
their  own  re-election.  The  late  Mr.  Jas.  Fisk  Jr.  is  re- 
ported to  have  said  that  he  could  never  be  turned  out  of 
his  seat  in  the  Erie  Board,  so  long  as  he  owned  a  printing 
press.  This  is  of  course  an  extreme  case  ;  but  it  serves 
to  illustrate  the  principle  that  a  divorce  between  the  legal 
ownership  of  stock  and  the  voting  power  which  is  its 


72  PROXIES. 

proper  incident  is  an  unhealthy  symptom  in  the  life  and 
administration  of  a  corporation.  If,  on  the  eve  of  an  elec- 
tion, stock  which  has  little  or  no  value  (except  for  specu- 
lative purposes)  is  bought  up  by  the  party  in  control  at 
(say)  forty  cents  or  fifty  cents  on  the  dollar,  it  is  impos- 
sible to  resist  the  conclusion  that  permanence  of  control 
must,  for  some  reason  or  other,  be  a  very  desirable  thing 
to  a  party  which  is  willing  to  pay  so  large  a  price  for  the 
exercise  of  power.  If  our  enquirer  is  induced  to  look  up 
this  question  and  to  ascertain  for  himself  why  any  stock, 
which  does  not  pay  a  dividend  in  the  present  and  has 
little  prospect  of  doing  so  in  the  future,  should  possess  a 
large  marketable  value,  he  may  perhaps  acquire  informa- 
tion which  may  be  of  use  to  him  in  his  future  invest- 
ments. Nor  will  he  fail  to  note  that  "  controlling " 
parties,  who  are  willing  to  make  considerable  sacrifice 
for  the  acquisition  of  stock  necessary  to  maintain  them  in 
power,  are  diligent  in  the  promotion  of  the  system  of 
proxies.  The  reasonableness  or  unreasonableness  of  the 
proxy  system  must  of  course,  in  the  last  resort,  depend 
upon  the  reasonableness  or  unreasonableness  of  the  dele- 
gation of  the  trust  which  is  involved  in  voting  power.  It 
will  not  be  denied  that  the  exercise  of  voting  po*wer  is,  in 
every  case,  the  exercise  of  a  trust.  Every  trust  contains 
within  itself  an  element  of  duty  and  of  responsibility. 
Every  improper  or  rash  exercise  of  a  trust  affects  to  a 
greater  or  less  extent  the  interests  of  other  persons  more 
or  less  numerous.  It  may  well  and  often  does  happen 
that  the  delegation  of  power  by  proxy  is  in  every  respect 
legitimate,  proper  and  expedient.  For  instance,  the  ad- 
ministration of  a  given  railroad  may  have  been  for  many 
years  past  in  every  respect  trustworthy,  efficient  and  suc- 
cessful. In  such  a  case,  the  delegation  of  a  controlling 


PROXIES.  73 

vote  by  proxy  to  one  or  more  Directors  who  are  deserved- 
ly entitled  to  the  confidence  of  shareholders  is  a  wise  and 
entirely  justifiable  step.  The  trustees  of  the  interests  of 
stockholders  have  represented  those  interests  to  the  best 
of  their  power,  and  have  earned  the  confidence  of  their 
cestuis  que  trustent.  But,  in  cases  where  the  history  of 
a  railroad  has  been  marked  by  the  unmistakable  incidents 
of  speculative  control,  the  proxy  system  is  necessarily 
fraught  with  danger. 

Our  observer  will,  in  the  course  of  his  casual  enquiries, 
read  some  of  these  proxies,  and  he  may  perhaps  observe 
that  they  affect  to  pledge  the  giver  of  the  proxy  to  some- 
thing like  a  power  irrevocable  within  a  given  number  of 
years,  or  even  irrevocable  absolutely.  He  will  (not  un- 
naturally) ask  what  inducement  there  can  possibly  be  for 
the  Trustees — or  practically  the  servants  of  the  stock- 
holders in  a  company — to  desire  comparatively  perma- 
nent pledges  in  respect  of  a  tenure  of  office,  which  can 
only  be  desirable  to  shareholders  so  long  as  it  is  thorough- 
ly understood  by  them  to  be  held  for  their  exclusive 
benefit,  and  in  the  prosecution  of  interests  neither  directly 
nor  indirectly  outside  of  their  own. 


CHAPTER  X. 

FUNDING. 

IN  his  casual  survey  our  observer  will  note  the  great 
number  of  enterprises  which  are  hopelessly  overloaded 
by  the  volume  and  incidents  of  their  fixed  indebtedness. 
The  experience  of  the  most  successful  English  railways 
certainly  points  to  the  conclusion  that  the  adjustment  of 
a  reasonable  or  even  heavy  measure  of  fixed  charges  is 
not  an  insoluble  problem.  It  does  not  necessarily  cripple 
the  credit  or  impair  the  efficiency  of  a  well-managed  rail- 
way, provided  the  rate  of  interest  be  not  unduly  burden- 
some. But  he  will  note  that,  in  many  American  railroads, 
while  the  senior  securities  receive  an  extraordinarily  high 
rate  of  interest,  sufficient  to  take  the  marrow  out  of  the 
concern,  the  junior  securities  have  nevertheless  multiplied 
to  an  extent  quite  passing  the  belief  of  the  ordinary  ob- 
server. It  goes  without  saying  that  the  holders  of  prior 
securities  would  always  welcome  a  large  extension  of  the 
interests  held  by  posterior  encumbrancers.  "  But  why," 
he  asks,  "  should  junior  securities  have  been  heaped  up  at 
such  an  unconscionable  pace,  and  to  such  an  incredible 
amount,  relatively  to  the  value  of  the  undertaking  ? " 
The  true  answer  may  perhaps  be  indicated  as  follows : 
The  trade  of  America,  of  which  railroads  are  more  or  less 
a  barometer,  has  undergone  many  grave  vicissitudes,  which 
it  is  unnecessary  to  specify  in  detail.  To  keep  a  concern 
going  under  grievous  pressure  often  needed  immediate  and 

74 


FUNDING.  75 

liberal  outside  assistance,  and  the  foreign  investor  was 
known  to  be,  as  a  rule,  dogged  and  staunch  in  protecting 
investments  to  which  he  had  committed  himself.  The 
prior  and  best  securities  in  American  railroads  were  gen- 
erally held  by  native  capitalists,  and  the  posterior  and 
more  risky  ones  were  unloaded  on  Europe.  The  spirit 
of  a  familiar  precept  contained  in  the  Levitical  law  * 
seems  to  have  been  appreciated  by  the  native  capital- 
ist in  connection  with  dead  or  moribund  concerns. 
"  Ye  shall  not  eat,"  says  the  precept,  "  of  any  thing 
that  dieth  of  itself :  thou  shalt  give  it  unto  the  stranger 
that  is  in  thy  gates  that  he  may  eat  it ;  or  thou  mayest 
sell  it  unto  an  alien." 

Now  the  native  holders  of  these  prior  securities  naturally 
maintained  a  very  hopeful  attitude  of  mind.  If  they  had 
not  felt  great  confidence  in  the  future  of  their  country, 
they  would  not  have  retained  even  prior  securities.  But 
they  believed  that  times  would  mend  and  that  existing 
troubles  would  be  only  transitory.  Their  confidence  in 
their  investment  was  confirmed  by  the  consciousness  of 
special  strength  derived  from  \hzpriority  of  their  securi- 
ties. They  felt  that  sort  of  trust  in  Providence  which 
a  poker  player  is  supposed  to  feel  when  he  holds  four 
aces.  Every  thing  which  they  could  do  to  stimulate  the 
confidence  of  investors  in  junior  securities  they  conscien- 
tiously and  consistently  did,  short  of  reducing  the  rate  of 
interest  to  which  their  own  securities  were  entitled.  They 
insisted  on  the  temporary  character  of  successive  depres- 
sions, and  said  re-assuring  and  often  witty  things  about 
the  future  of  their  railroads. 

If,  when  collapse  and  stoppage  of  effective  work  were 
imminent,  foreign  investors  had  insisted  on  measures  of 

*  Deuteronomy,  xiv.,  21. 


/6  FUNDING. 

funding,  sufficiently  drastic  to  place  a  railroad  in  a  condi- 
tion to  bear  its  fixed  charges,  they  would  have  occupied 
an  indefinitely  better  position  to-day.  The  command  of 
ready  money,  sufficient  to  stave  off  a  disastrous  crisis,  is 
an  immense  screw  power  recognized  to  a  greater  or  less 
extent  even  by  prior  encumbrancers.  A  modest  interest 
in  a  solvent  going  concern  is  often  more  satisfactory  than 
a  larger  interest  in  an  enterprise  which  may  at  any  mo- 
ment become  unproductive  or  insolvent.  If  there  be  any 
truth  in  this  view,  the  proper  time  to  assert  it  commonly 
occurs  when  ready  money  is  urgently  needed.  If  such  an 
opportunity  is  missed,  it  may  possibly  not  recur ;  for 
finance,  like  whist,  rarely  forgives  a  blunder.  In  a  vast 
number  of  instances  occasions  suitable  for  drastic  meas- 
ures of  funding  were  overlooked.  And  so  it  came  to  pass 
that  the  native  investor  sat  down  quietly  in  the  enjoyment 
of  his  seven  or  eight  per  cent.,  and  advised  the  junior 
encumbrancers  to  settle  it  among  themselves.  He  pru- 
dently withdrew  from  the  strife 

.     .     .     "  ere  close  of  day, 
And  bade  the  rest  keep  fighting." 

To  ask  prior  encumbrancers  to  concur  in  funding  ar- 
rangements of  drastic  character  is  of  course  to  ask  a 
great  deal.  Sometimes  the  mere  magnitude  of  an  under- 
taking renders  it  improbable  that  prior  encumbrancers 
will  fail  to  get  their  coupons  paid  for  several  years  to 
come.  Of  course,  the  greater  the  value  of  posterior  in- 
terests, the  greater  is  the  probability  that  the  first  mort- 
gagee will  be  saved  harmless.  As  long  as  he  gets  his  seven 
or  eight  per  cent,  on  bonds  which  he  originally  bought  at 
prices  far  below  their  face  value,  he  has  every  reason 
to  be  satisfied  with  the  status  quo.  Delay  is  altogether 


FUNDING. 


77 


In  his  favour,  and  the  energy  developed  by  persons  who 
desire  to  include  him  in  funding  arrangements  seems  to 
him  repulsive,  not  to  say  unchristian.    On  the  other  hand, 
a  railroad  of  large  mileage,  burthened  with  excessive  capi- 
tal and  in  inferior  working  condition,  is  not  an  article 
which,  in  the  event  of  a  foreclosure,  every  investor  (even 
a  first  mortgagee)  would  wish  to  acquire  or  could  use 
with  effect.     There  is  something  of  the  white  elephant 
about  it.     It  is  not  given  to  every  one  to  handle  a  white 
elephant  as  Mr.  Barnum  did.     Capitalists  possessing  enor- 
mous resources  might,  in  rare  instances,  be  able  to  do 
so, — in  the  confident  expectation  of  persuading  the  public 
to  shoulder  the  heavier  portion  of  the  weight  to  be  car. 
ried.     But  nothing  short  of  exceptional  ability,  backed  by 
liberal  supplies  of  money,  could  cope  with  the  situation  so 
as  to  make  a  profit.     Probably  in  the  long  run  a  thor- 
oughly liberal  adjustment,  by  funding  the  fixed  indebted- 
ness of  an  overburthened  enterprise,  would  be  best  for  all 
parties,  even  though  it  postulated  exceptional  foresight 
and  generosity  in  respect  of  sacrifices  and  concessions  which 
would  be  inevitable.     The  history  of  a  great  railroad  may 
fairly  be  regarded  as  covering  a  large  area   in  national 
growth  and  development, — far  larger  than  that  which  is 
embraced  by  an  individual  life.     There  is  both  need  and 
room  for  a  long  range  of  foresight,  and  for  a  corresponding 
generosity  in  the  interpretation  of  prospective,  sometimes 
very  remote,  conditions.     Our  observer  will  note  that  the 
wise  adjustment  of  fixed  charges  is  an  element  too  im- 
portant to  be  lightly  passed  by.     The  price  of  money, 
popular  sentiment,  trade   depression,    and   in   short   the 
general  tendency  of  the  times  point. to  the     conclusion 
that  railroad  profits  in  the  future  may  suffice  to  pay  rea- 
sonably good  and  safe  interest  on   fixed  indebtedness; 


78  FUNDING. 

but  that,  if  the  encumbrancer  expects  a  rate  of 
seven  or  eight  per  cent,  on  bonds  which  were  originally 
bought  at  (say)  sixty  per  cent,  of  their  face  value,  or  seven 
or  eight  per  cent,  on  the  capital  of  leased  lines  which  were 
capitalized  and  taken  up  at  prices  representing  two  or 
three  times  their  value,  there  cannot  be  enough  to  go 
round. 

That  the  holders  of  junior  securities  get  very  little  in 
any  given  year  is  not  the  worst  feature  of  the  situation. 
It  has  been  said  above  that  reasonably  large  fixed  charges 
at  a  moderate  rate  of  interest  were  not  disadvantageous. 
The  reasons  are  sufficiently  simple.  Outlay  which  ought 
to  be  charged  to  capital  account  can  be  so  charged  and  pro- 
vided at  a  moderate  rate  of  interest.  This  leaves  in  the 
hands  of  the  administration  a  large  fund  of  ready  money, 
which  is  of  incalculable  value  in  the  conduct  of  their  bus- 
iness. All  that  they  need  to  purchase  can  be  purchased 
in  the  most  convenient  market,  of  the  best  quality,  and  at 
the  lowest  prices,  for  cash.  Labour  is  liberally  and  regu- 
larly paid,  and  the  railroad  service  is  improved  thereby. 
The  floating  debt  is  not  permitted  to  accumulate  un- 
fairly ;  nor  paper  put  on  the  "  Street "  at  extravagant 
rates  of  interest.  The  cost  of  incessant  litigation,  varied 
by  an  occasional  receivership  foreclosure  and  reorganiza- 
tion, is  avoided.  The  immense  economies,  which  are  pos- 
sible to  a  solvent  road  paying  only  reasonable  interest  on 
its  fixed  indebtedness,  and  employing  its  earnings  so  as  to 
utilize  the  maximum  purchasing  power  of  ready  money, 
go  far  not  only  to  make  the  road  generally  successful,  but 
to  clothe  its  securities  with  stability.  It  may  be  worth 
noting  that  where  American  railroad  securities  have  shown 
stability  for  some  years,  there  is  a  very  strong  presump- 
tion of  an  indefinitely  progressive  increase  in  value.  Ex- 


FUNDING,  79 

ceptional  circumstances  may,  of  course,  interfere  with 
such  a  result.  But,  as  a  general  rule,  a  railroad  which  has 
for  some  years  produced  a  steady  profit  has  an  excellent 
chance  of  uninterrupted  advance  in  prosperity.  Every- 
body realizes  that  demand  creates  supply.  It  is  some- 
times worth  bearing  in  mind  that  supply  in  turn  creates 
demand.  A  sound  railroad  administration,  and  the  effec- 
tive service  incident  thereto,  attracts  to  itself  fresh  accre- 
tions of  business,  not  merely  because  the  business  of  the 
country  increases  and  grows  up  to  meet  the  outlay  origi- 
nally made  in  construction,  but  also  because  peace,  sta- 
bility and  credit  are  substantial  factors  in  commercial 
success. 

Of  course,  it  may  be  said  that  many  railroad  corpora- 
tions which  do  not  hold  this  creed  hang  on  to  life  and,  to 
a  greater  or  less  degree,  satisfy  the  aspirations  of  their 
shareholders.  That  is  no  doubt  true  to  a  certain  extent. 
But  satisfaction  in  the  present  is  heavily  discounted  by 
the  confident  forecast  of  difficulty  in  the  future.  A  rail- 
road which  is  hopelessly  overburthened  must  some  day  or 
other  face  the  axioms  of  the  multiplication-table,  and  rec- 
ognize that  two  and  two  make  four,  and  not  five.  Take 
the  case  of  a  railroad  which  finds  itself  to-day  unable  to 
meet  its  funded  indebtedness  without  immense  prospec- 
tive sacrifice.  To  make  any  show  at  all,  it  must  let  its 
track  and  equipment  run  down.  It  is  strongly  tempted  to 
disguise  to  a  greater  or  less  extent  its  floating  debt,  and 
to  ignore  engagements  on  paper  which  have  not  matured. 
Its  credit  is  impaired,  and  the  purchasing  power  of  paper 
is  very  inferior  to  the  purchasing  power  of  cash.  It  is  con- 
stantly liable  to  the  incidents  of  hostile  action  ;  it  must 
get  ready  money  somehow,  and  it  gets  it  at  an  exorbitant 
price.  When  the  end  eventually  comes,  it  is  quite  cer- 


80  FUNDING. 

tain  that  somebody  will  be  badly  hurt.  You  cannot  rea- 
sonably expect  a  syndicate  to  find  money  for  a  sinking 
concern,  without  adequate  compensation  and  approximate 
security.  But,  if  the  situation  is  radically  a  false  one,  it  is 
extremely  doubtful  whether  it  is  worth  while  to  prolong 
the  agony.  Our  observer  will  do  well  to  make  note  that 
the  necessity  of  drastic  measures  of  funding  and  the  pos- 
sibility of  carrying  them  out  may  afford  him  profitable 
subject  for  reflection  in  connection  with  railroads  in  which 
he  holds,  or  proposes  to  acquire,  an  interest. 


CHAPTER    XL 
RECEIVERS'  CERTIFICATES. 

A  FORM  of  security  in  which  a  good  deal  of  money 
has  been  made  and  lost  is  the  Receivers'  certificate.  It 
may  be  said  shortly  tthat  investment  in  this  form  of  se- 
curity is  good  for  the  inside,  and  somewhat  risky  for  the 
outside,  investor.  It  goes  without  saying  that  the  strength 
of  the  Receivers'  certificate  is  the  priority  over  all  previous 
encumbrances  with  which  it  is  invested  by  the  special  ac- 
tion of  a  court  of  competent  jurisdiction.  The  validity 
and  completeness  of  the  order  creating  it  is  a  very  simple 
matter,  calling  for  no  special  business  knowledge.  But 
other  considerations  occur  which  our  enquirer  will  do  well 
to  note. 

The  purpose  of  this  special  form  of  security  is  to  meet 
a  grave  emergency, — so  grave  that,  in  the  opinion  of  the 
Court,  it  is  entitled  to  take  precedence  over  mortgagees. 
To  arbitrarily  set  back  the  priority  of  a  first  mortgagee  is 
obviously  a  tremendous  exercise  of  power,  and  can  be  jus- 
tified only  by  strict  vigilance  and  close  examination  of  the 
urgent  need  which  it  is  proposed  to  meet,  and  by  the  en- 
forcement of  unconditional  compliance  with  the  orders  of 
the  Court.  Suppose  it  to  happen  (and  in  the  writer's  ex- 
perience it  has  often  happened)  that  the  certificates  were 
duly  issued  and,  so  far  as  the  face  of  the  documents  were 
concerned,  were  in  every  respect  satisfactory.  Let  us  sup- 
pose next  that  the  proceeds  of  such  certificates,  instead  of 

81 


82  RECEIVERS'    CERTIFICATES. 

being  expended  on  purposes  within  the  four  corners  of 
the  order,  have  been  diverted  to  other  purposes.  The 
chances  are  that  the  holder  of  the  certificate  will  have  to 
fight  his  battle  with  the  first  mortgagee,  and  is  very  likely 
to  get  nothing  out  of  it  beyond  some  valuable  hints  for 
his  future  guidance.  Our  enquirer's  rough  conclusion 
will  be  to  invest  freely  in  Receivers'  certificates  when  he  is 
inside,  and  to  leave  them  alone  when  he  is  outside. 


CHAPTER  XII. 

CORNERS. 

FIFTEEN  or  twenty  years  ago  the  effect  of  a  well- 
organized  corner  was  so  tremendously  drastic  that  it  was 
apt  to  leave  an  enduring  mark  on  subsequent  railroad  his- 
tory. But  of  late  years,  owing  to  increased  publicity  and 
a  more  general  diffusion  of  knowledge  on  the  subject  of 
railroad  business,  the  occurrence  of  an  effective  corner  is 
comparatively  rare.  Only  at  very  long  intervals  are  the 
special  conditions  necessary  for  complete  success  found  in 
juxtaposition.  A  successful  exhibition  of  the  process 
postulates  as  a  matter  of  course,  first,  the  existence  of  a 
market  in  a  particular  stock  so  active  (in  its  speculative 
sense)  that  extensive  short  sales  have  been  made,  and  the 
amount  of  such  sales  must  bear  a  very  large  proportion  to 
the  total  amount  of  the  particular  stock.  Secondly,  the 
campaign  must  be  engineered  by  fairly  strong  and  adroit 
manipulators.  Thirdly,  these  must  be  able  to  rely  with 
reasonable  confidence  on  the  entire  good  faith  of  their 
confederates.  The  leading  conditions  being  fulfilled,  it  is 
easy  to  see  that  the  quiet  acquisition  or  control  of  the 
whole  or  nearly  the  whole  of  the  stock  of  a  given  com- 
pany will  enable  the  holders  to  squeeze  the  short  sellers, 
and  make  them  pay  for  their  release  whatever  price  may 
be  demanded.  It  has  been  discovered  however  by  ex- 
perience that  the  combination  of  these  necessary  elements 
is  very  rarely  perfect  at  all  points. 

83 


84  CORNERS. 

Although  the  holders  of  nearly  all  the  stock  of  a  com- 
pany— in  connection  with  which  a  corner  is  projected — 
may  feel  that  they  are  logically  in  command  of  the  situa- 
tion, their  corner  may  be  broken  by  an  irregular  issue  of 
new  stock.  This  was  the  method  pursued  with  much 
effect  by  the  late  Mr.  James  Fisk  Jr.  Or  again  they 
may  be  conscious  of  holding  nearly  all  the  stock  of  a 
company,  and  have  orders  in  the  market  to  buy  up  the 
small  outstanding  residue  at  comparatively  high  prices. 
This  they  can  afford  to  do  in  view  of  large  profits  to  be 
realized  hereafter.  But  presently  they  discover  that  there 
is  apparently  no  end  to  the  amount  of  stock  which  they 
can  purchase  at  these  comparatively  high  prices;  and  it 
eventually  dawns  on  them  that  this  high-priced  stock 
which  they  have  lately  purchased  has  been  unloaded  on 
them  by  one  of  their  own  confederates.  On  the  whole,  it 
may  be  considered — for  practical  purposes — that  the  old- 
fashioned  corner,  in  its  highly  picturesque  and  dramatic 
development,  is  played  out.  More  or  less  remote  imita- 
tions of  it  are  still  in  vogue.  But  the  enquirer  will  prob- 
ably be  well  advised  to  leave  the  corner  business  alone. 
Outside  meddlers  with  a  corner  may  generally  count  on 
getting  hurt  in  one  form  or  another ;  and,  apart  from  the 
doubtful  morality  of  the  transaction,  the  investor  will  gen- 
erally find  that  the  game  is  not  worth  the  candle. 


CHAPTER   XIII. 

PUBLICITY. 

WHILE  it  would  be  idle  to  suppose  that  publicity  is  a 
specific  for  all  kinds  of  irregular  or  defective  administra- 
tion, it  is,  to  a  certain  extent,  rightly  associated  in  the 
investor's  mind  with  open  and  straightforward  manage- 
ment. The  kind  of  discrimination  which  has  incited  pub 
lie  sentiment  to  favour  drastic  legislation  against  railroads 
would  have  been  in  a  great  measure  restrained  by  the 
action  of  publicity,  if  applied  in  due  time  and  by  well- 
chosen  methods.  A  judicious  and  business-like  tariff, 
framed  not  necessarily  by  Railroad  Commissioners  but  by 
skilful  and  responsible  railroad  officials,  would  of  course 
have  failed  to  give  universal  satisfaction ;  but  it  would 
have  afforded  all  sections  of  the  public  the  same  kind  of 
chance  within  certain  well-understood  conditions  and  limi- 
tations. Thus,  for  example,  the  right  of  a  transporting 
company  to  recognize  a  distinction  between  wholesale 
and  retail  business,  between  large  quantities  of  freight 
delivered  at  regular  intervals,  and  small  quantities  un- 
certain or  capricious  in  point  of  delivery,  would  only 
need  the  condition  of  publicity  to  make  it  work  fairly.  It 
would  soon  come  to  be  understood  that,  in  pursuance  of 
established  commercial  canons,  the  wholesale  regular 
shipper  has  an  intrinsic  right  to  better  terms  of  transpor- 
tation than  the  small  and  irregular  shipper.  If  I  want  a 
single  dinner  provided  for  me  by  a  restaurant  keeper  three 

85 


86  PUBLICITY. 

days  in  a  week,  but  am  not  sure  on  which  days  in  the 
week  or  at  what  hour  in  the  day  I  shall  require  it,  a  busi- 
ness man  will  arrange  to  supply  me  at  a  reasonable  price. 
But,  if  I  extend  my  order  to  fifty  dinners  a  day  of  the 
same  quality,  to  be  ready  certain  at  two  o'clock  every  day 
for  three  months,  it  is  plain  that  I  have  a  right  to  expect 
more  favourable  terms.  The  difference  between  whole- 
sale and  retail  interchange  is  a  recognized  factor  in  all 
departments  of  supply  and  demand ;  and  it  is  difficult  to 
see  why  transportation — considered  as  a  commodity- 
should  be  exempted  from  the  rule,  except  in  cases  where 
it  becomes  part  of  an  organized  national  service,  like  the 
Post-office  or  the  Telegraph  in  England.  Obviously  the 
making  of  profit  is  not  essential  to  a  public  service  of  the 
latter  kind,  but  merely  incidental  to  it.  If  a  profit  is 
made,  so  much  the  better.  But,  if  loss  accrue,  the  rate- 
payer is  in  the  last  resort  responsible  for  a  deficit.  If  a  pub- 
lic service  established  on  this  basis  chooses  to  ignore  the 
distinction  between  wholesale  and  retail  business,  it  is  of 
course  at  liberty  to  do  so.  It  is  not  so  clear  that  a  State 
has  any  right  to  compel  a  trading  company  to  ignore  this 
distinction,  when  it  has  specifically  recognized  its  position 
as  a  trading  company,  and  has  accepted  a  large  valuable 
consideration  in  exchange  for  powers  conferred  under  a 
charter.  The  advantage  of  publicity  in  such  a  case  would 
be  to  make  quite  clear  to  everybody  the  terms  on  which  a 
transporting  company  could  effectually  do  its  business. 
It  would  accentuate  the  proposition  referred  to  above, 
that  it  is  no  part  of  the  business  of  the  purveyors  of  trans- 
portation to  equalize  at  their  own  expense  the  inevitable 
difference  between  the  strong  and  the  weak  trader.  The 
wisdom  or  unwisdom  of  embarking  in  a  particular  line  of 
industry  ought  to  be  judged  of  by  each  individual  trader 


PUBLICITY.  87 

on  his  own  responsibility,  with  direct  reference  to  his  own 
business  aptitudes,  capital  and  environment,  and  not  by 
the  transporting  companies  of  whose  services  he  desires  to 
make  use. 

While  in  the  case  of  soundly  administered  companies  a 
yearly  report  is  found  sufficient  for  all  practical  purposes, 
it  cannot  be  seriously  supposed  that  such  a  mechanism  is 
an  adequate  protection  to  the  average  investor.  Let  us 
suppose  the  case  of  a  speculative  administration  which, 
with  the  aid  of  its  outside  friends,  has  decided  to  put  up 
the  stock.  Their  track  and  equipment  are  badly  run  down 
and  need  large  outlay  to  restore  them  to  average  working 
condition.  But  their  gross  receipts  are  actually,  and  their 
net  earnings  apparently,  large  ;  and  as  the  party  in  control 
have  decided  to  put  up  the  stock,  it  is  thought  desirable  to 
pay  a  dividend  on  preference  shares  in  aid  of  the  projected 
boom.  The  day  for  an  annual  report  is  approaching. 
What  is  to  be  done  about  the  floating  debt  ?  It  is  nomi- 
nally stated  at  (say)  three  or  four  millions  of  dollars.  But 
the  equipment  needed  for  the  new  "  boom  "  will  run  it  up 
to  (say)  six  or  seven  millions.  Now,  suppose  all  the  roll- 
ing stock  and  equipment  that  is  needed  be  procured  by 
means  of  paper  maturing  after  the  date  of  the  official  report. 
These  are  of  course  engagements  and  liabilities  which 
must  some  day  be  met,  but  they  are  not  strictly  debts, 
because  the  paper  has  not  matured.  Our  imperfectly  in- 
formed enquirer  may  well  imagine  the  annual  statement 
to  represent  the  condition  of  the  floating  debt,  and  may 
invest  freely.  But  when  the  next  annual  report  is  made 
he  discovers  that  he  knew  very  little  about  the  true  con- 
dition of  the  floating  debt  at  the  time  of  making  his  in- 
vestment. Here  again  it  is  not  impossible  that  publicity 
derived  from  quarterly  statements  might  conduce  to  the 


88  PUBLICITY. 

protection  of  the  investor.  A  financial  coup  in  a  specula- 
tive stock  needs  a  reasonable  time  for  incubation,  and  the 
intervention  of  publicity  at  short  intervals  is  very  unfavour- 
able to  the  successful  manipulation  of  such  coups.  Of 
course  cases  occur  in  which  the  party  who  control  the 
speculative  road  and  temporarily  own  the  majority  of  its 
stock  contend  that  they  do  not  desire  aggressive  publicity, 
but  prefer  to  run  their  own  business  in  their  own  way. 
That  might  be  a  conclusive  answer  to  any  thing  that  the 
casual  investor  could  say,  if  it  were  not  for  the  fact  that 
he  and  his  class  are  precisely  the  people  upon  whom  the 
securities  of  the  speculative  company  will  be  presently 
unloaded. 

The  prevalent  divergence  in  the  method  of  keeping 
railroad  accounts  is  a  matter  which  will  probably  be  soonef 
or  later  dealt  with  by  Congress.  It  may,  for  the  present, 
be  dismissed  with  the  remark  that  nothing  short  of  inside 
knowledge  will  enable  the  enquirer  to  pursue  this  subject 
with  appreciable  advantage.  If  this  question,  coupled 
with  that  of  Inter-State  commerce,  be  subjected  to  a  new 
and  special  type  of  regulation,  the  effect  of  publicity  will 
be  very  largely  increased.  It  Js  thought  possible  by  some 
observers  that  the  formal  legalization  of  pools  would  pro- 
duce satisfactory  results,  in  the  direction  of  publicity  and 
a  clear  understanding  of  the  subject  by  all  classes.  But 
on  this  point  no  forecast  can  at  present  be  made  with  any 
approach  to  confidence.  It  may  be  prudent  however  to 
note  in  passing  that,  when  railroad  companies  hold  sub- 
stantial interests  in  various  kinds  of  property  not  immedi- 
ately connected  with  the  purpose  of  their  corporate  ex- 
istence, a  very  sanguine  view  is  apt  to  be  taken  in 
official  reports  of  the  market  value  of  collateral  assets. 
There  may  be,  for  instance,  included  in  the  list  of  assets 


PUBLICITY.  89 

large  blocks  of  securities  connected  with  leased  lines,  or 
with  property  which  it  is  thought  may  some  day  be  valu- 
able for  terminal  facilities,  or  perhaps  coal  or  mineral 
land,  or  real  estate  in  projected  new  towns.  The  business 
of  a  transporting  company  is,  as  a  rule,  most  effectually 
conducted,  when  attention  is  exclusively  given  to  the 
matter  in  hand  and  not  to  collateral  undertakings.  In 
these  days  it  is  a  sufficiently  difficult  task  for  a  railroad 
company  to  conduct  its  proper  business  on  a  paying  basis. 
A  transportation  company  cannot,  in  the  long  run,  profit- 
ably become  the  owner  of  the  produce  which  it  is  its  busi- 
ness primarily  not  to  produce  but  to  transport.  Excep- 
tional cases  will  of  course  occur  in  which  it  may  be  pos- 
sible to  run  under  the  same  "umbrella"  all  kinds  of 
incompatible  elements.  But,  from  the  investor's  point  of 
view,  business  of  this  kind  is  a  fertile  source  of  mistake 
and  confusion.  The  railroad,  which  spends  a  good  deal  of 
time  and  energy  in  hauling  about  material  which  it  pro- 
duces, may  make  a  good  show  on  paper ;  but  inferences 
derivable  from  a  superficial  view  of  its  nominal  earnings 
are  very  likely  to  be  illusory.  Again,  the  valuation  of 
collateral  assets  only  indirectly  connected  with  the  busi- 
ness of  a  transporting  company  is  very  apt  to  be  sanguine 
and  excessive.  Nothing  is  more  common  than  to  find 
that,  if  an  effort  were  made  to  realize  them  in  discharge  of 
floating  debt,  their  immediate  market  value  would  turn 
out  to  be  merely  nominal,  and  their  prospective  value  al- 
together too  remote  to  deserve  the  confidence  of  an  in- 
tending investor.  New  acquisitions,  new  construction, 
new  additions  to  mileage  or  accommodation  form  the 
proper  subject-matter  for  an  enlightened  increase  of 
funded  debt  at  a  reasonable  rate  of  interest.  When  ex- 
traordinary weight  is  attached  to  them,  as  a  set-off  to  an 


QO  PUBLTCTTY. 

excessive  floating  debt,  an  intending  investor  is  put  on  his 
enquiry.  It  may  well  happen  that  these  new  acquisitions 
represent  money  which  under  a  sound  administration 
should  have  been  appropriated  to  repairs.  No  more 
wasteful  or  dangerous  method,  from  the  investor's  point 
of  view,  can  be  adopted  than  to  allow  the  track  and  equip- 
ment of  a  going  concern  to  run  down,  and  to  excuse  or 
disguise  such  a  result  by  a  showy  statement  of  new  acqui- 
sitions or  collateral  assets.  It  is  a  method  which  points 
to  receivership  and  insolvency  as  truly  as  the  needle 
points  to  the  pole. 

Our  enquirer  will  probably  come  to  the  conclusion  that 
the  drift  of  the  age  is  in  favour  of  exclusive  attention  to 
the  particular  matter  in  hand,  and  he  will  be  inclined  to 
prefer  those  forms  of  administration  which  do  not  go,  to 
any  large  extent,  outside  of  their  proper  business. 


CHAPTER   XIV. 

RAILROAD   COMMISSIONS. 

BY  far  the  most  important  change  in  the  status  of  rail- 
road property  which  has  taken  place  in  recent  years  turns 
on  the  adoption  of  the  Railroad  Commission.  The  bear- 
ing on  railroad  property  of  this  institution  must  be  sought, 
not  so  much  in  the  principle  of  a  Railroad  Commission — 
which  is  probably  right, — as  in  the  remarkable  variation  in 
point  of  degree,  which  in  different  States  characterizes  the 
powers  conferred  on  the  Commissioners.  For  instance, 
between  the  advisory  method  successfully  adopted  by 
Massachusetts  and  the  somewhat  peremptory  exercise 
of  power  which  prevails  in  Georgia  there  is  a  great  gulf 
fixed.  Whichever  form  may  be  preferred  by  the  intend- 
ing investor,  it  is  plainly  worth  his  while  to  bear  in  mind 
that  the  jurisdiction  of  a  Railroad  Commission  is  a  very 
elastic  thing ;  and  it  will  be  prudent  for  him  to  give  some 
attention  to  its  principles,  its  incidents  and  its  possibili- 
ties. The  issues  raised  by  it  are  important  in  principle 
and  far-reaching  in  practical  result;  e.  g.,  Is  a  railroad 
corporation  which  has  built  a  road  at  its  own  expense 
simply  a  purveyor  of  transportation  whose  status  is  de- 
fined by  formal  legislation,  or  is  it  an  agent  of  the  State 
and  a  trustee  for  the  people  ?  To  whom  does  the  incre- 
ment of  value  properly  belong?  Does  the  admitted 
power  of  the  State  to  assume  ownership  of  railroads  on 
payment  of  compensation  involve  the  right  to  assume 

9' 


92  RAILROAD   COMMISSIONS. 

their  virtual  management  without  giving  either  compen- 
sation or  indemnity  against  losses  resulting  from  defective 
or  unfortunate  State  intervention?  If  the  State  under- 
takes to  reduce  the  earning  power  of  a  railroad  and  to 
annex  a  portion  of  the  increment  of  value,  can  it  fairly 
prescribe  the  expenditure  by  corporations  of  additional 
capital  and  the  improvement  of  existing  accommodations, 
outside  the  requirements  of  public  safety?  Is  "regula- 
tion "  substantially  a  corrective  process,  or  is  it  broad 
enough  in  its  application  to  railroads  to  supersede  a 
charter  ? 

The  mode  in  which  these  questions  are  practically  an- 
swered by  State  legislation  is  a  matter  of  grave  import- 
ance to  foreign  stockholders.  If  they  are  held  to  be 
traders  or  purveyors  of  transportation  protected  by  valid 
contracts,  they  can  take  care  of  themselves  by  reasonable 
vigilance.  But,  if  the  earning  power  of  their  railroads  and 
the  amount  of  their  dividends  are  liable  to  be  indefinitely 
reduced  or  restricted  by  the  State,  while  the  entire  re- 
sponsibility for  losses  is  left  on  their  shoulders,  then 
their  position  is  not  without  serious  difficulties. 

The  assertion  by  a  State  of  a  right  to  fix  rates  and 
limit  dividends  by  ex  post  facto  legislation,  without  re- 
gard to  existing  charters  and  without  compensation  or 
indemnity,  is,  in  fact,  the  barely  disguised  assertion  of  a 
right  to  confiscate  *  to  a  greater  or  less  extent  the  incre- 
ment of  value  legitimately  accruing  to  a  going  concern. 
In  connection  with  a  railroad  the  increment  of  value  can- 
not with  any  semblance  of  propriety  be  described  as  an 
"  unearned  "  increment.  In  a  vast  number  of  instances 
an  American  railroad  may  be  said  to  create  the  settle- 
ment of  population  which  is  destined  to  furnish  passen- 

*  Binghampton  Bridge  Case,  3  Wai.  51. 


RAILROAD   COMMISSIONS.  93 

gers  and  to  produce  freight.  Reflex  activities  are  of 
course  stimulated,  and  contribute  in  their  turn  to  the 
development  of  traffic ;  but  in  many  instances  the  rail- 
road itself  primarily  constitutes  the  determining  condi- 
tion of  settlement  in  a  particular  place,  and  of  the  trans- 
portation of  passengers  and  merchandise  through  a  par- 
ticular channel.  Subject  to  the  restraints  of  equitable 
regulation,  the  right  of  a  constructing  company  to  the 
increasing  benefit  of  the  business,  which  it  builds  up  by 
its  outlay  and  its  skill,  is  no  less  real  than  that  of  the 
founder  of  a  purely  commercial  or  professional  business 
to  the  increasing  benefit  of  his  capital  or  ability.  If  it 
has  undertaken  extraordinary  risks  in  consideration  of 
the  special  protection  of  a  charter,  statutory  rights  are 
added  to  its  natural  equities. 

To  transfer  in  whole  or  in  part  the  increment  of  value 
of  a  railroad  by  ex  post  facto  legislation,  without  regard 
to  existing  charters  and  without  giving  equivalent  of  any 
kind,  while  decrement  is  allowed  to  take  care  of  itself,  is 
to  say  the  least  of  it  a  strong  measure.  It  constitutes  a 
new  departure  in  respect  of  the  rights  and  incidents  of 
ownership.  It  involves  pecuniary  incidents  of  great  im- 
mediate value,  and  suggests  remoter  political  inferences 
in  respect  of  the  definition  and  rights  of  property,  which 
it  is  impossible  to  regard  lightly. 

The  return  of  comparative  prosperity  in  railroad  enter- 
prise, which  ensued  after  the  severe  depression  incident 
to  the  great  panic  of  1873,  brought  with  it  conditions 
calculated  to  excite  possibly  not  alarm,  but  certainly 
vigilance. 

A  formidable  indictment,  including  counts  in  respect  of 
discrimination  and  extortion,  was  brought  against  trans- 
portation companies  at  the  instance  of  the  people  ;  and 


94  RAILROAD   COMMISSIONS. 

very  drastic  treatment  was  recommended,  with  an  em- 
phasis too  cordial  to  admit  of  misapprehension.  So  long 
as  this  movement  was  confined  to  occasional  complaints 
conveyed  through  the  press  or  to  isolated  action  taken 
in  the  courts,  railroad  managers  regarded  it  lightly.  But 
as  soon  as  it  was  seriously  taken  in  hand  by  several  State 
Legislatures,  the  subject  assumed  a  graver  aspect. 

The  agitation  of  a  popular  grievance  in  a'  State  Legis- 
lature has,  ere  now,  been  known  to  result  in  legislation 
altogether  more  sweeping  than  the  champions  of  the 
grievance  originally  desired  or  deserved.  Excited  feeling 
is  often  an  indispensable  agent  in  accelerating  the  correc- 
tion of  abuses  ;  but  it  is  a  dangerous  basis  for  hasty  legis- 
lation touching  rights  of  property.  It  is  too  often  unre- 
strained by  accurate  knowledge  and  unchastened  by  fair 
discussion  ;  and  is  therefore  frequently  uncritical  and  some- 
times unjust.  Searching  criticism  and  a  calm  review  of 
relative  rights  are  conditions  essential  to  sound  and  per- 
manent legislation.  In  the  absence  of  these  elements,  it 
sometimes  happens  that,  by  the  hasty  adoption  of  unsound 
principles,  mischief  is_  done  in  a  single  Session  which  it 
needs  the  labour  of  many  years  to  repair.  No  doubt  the 
"  heroic  "  mode  of  treatment  has  its  merits,  when  applied 
by  a  master-mind  under  very  special  conditions.  But  ex- 
perience shows  that,  in  cases  involving  the  nice  adjustment 
of  complex  and  conflicting  interests  in  property,  it  is  apt 
to  be  somewhat  heavy-handed.  The  laws  of  trade  and 
the  traditions  of  commercial  good  faith  recognize  a  close 
relation  between  burthens  and  privileges,  risks  and  profits. 
Special  legislation,  which  purports  to  modify  this  relation 
to  an  appreciable  extent,  should  at  least  be  deliberate  and 
well-considered.  Again,  the  laws  of  supply  and  demand 
require  special  care  and  insight  for  their  correct  interpre- 


RAILROAD   COMMISSIONS.  95 

tation.  •  The  statesman  who  seeks  to  evade  or  postpone 
their  natural  operation  by  the  creation  of  an  artificial 
mechanism,  is  undertaking  to  interfere  with  laws  which  do 
not  readily  lend  themselves  to  external  regulation  or  con- 
trol. The  whole  subject  is  complex  and  difficult.  Rash 
and  hasty  treatment  of  it  is  likely  to  involve  injustice  on 
the  one  hand  and  short-sightedness  on  the  other. 

If  this  be  so,  it  may  be  worth  while  to  note  the  tenour 
or  drift  of  popular  aspiration  in  connection  with  this  most 
important  subject.  This  may  be  roughly  formulated  un- 
der the  following  heads,  of  which  some  have  already 
obtained  legislative  acceptance,  and  others  are  recom- 
mended as  subjects  for  immediate  conference  between  the 
Railroad  Commissioners  of  several  States,  with  a  view  to 
more  extended  and  uniform  legislative  action. 

ist.  The  institution  of  boards  of  Railroad  Commission- 
ers with  unprecedentedly  large  powers  involving  the 
assumption  of  important  directorial  functions.  The  cost 
of  their  maintenance  to  be  paid  by  the  railroads  subject 
to  their  jurisdiction. 

2d.  The  formal  incorporation  into  the  statute-book  of 
the  several  States  of  the  proposition  that  "  a  railroad  is  a 
public  highway,  the  property  of  the  people."  As  inci- 
dents thereof, 

3d.  The  right  of  the  people  by  their  Commissioners  to 
fix  rates,  settle  tariffs  and  revise  special  contracts. 

4th.  The  like  right  to  limit  dividends  in  advance. 

5th.  The  right  to  direct  from  time  to  time  additional 
expenditure  by  corporations,  in  order  to  furnish  such 
improved  accommodation  as  may  be  deemed  suitable  for 
the  public  convenience,  outside  the  requirements  of  public 
safety. 

As  regards  No.   i,  it  may  be  broadly  stated  that  the 


96  RAILROAD   COMMISSIONS. 

better  opinion  in  America  favours  the  institution  of  Rail- 
road Commissions,  provided  their  powers  be  confined  to 
"  regulation,"  as  the  term  is  commonly  understood.  Sub- 
ject to  this  condition,  no  objection  would  probably  be 
made  to  a  special  tax  on  railroads  for  maintenance  of 
such  Commissions,  though  it  may  be  doubted  whether 
this  expense  be  not  properly  chargeable  to  the  public 
(State)  revenue.  Nor  would  serious  opposition  be  offered 
to  a  maximum  rate  for  freight  and  passengers,  if  special 
equities  were  provided  for.  A  sound  Commission,  com- 
petent to  judge  of  evidence  and  free  from  party  bias, 
would  probably,  by  its  mere  existence,  prevent  more  griev- 
ances than  it  would  ever  be  called  on  to  redress.  But,  in 
order  to  accomplish  this  result,  its  judicial  characteristics 
should  be  essential  and  predominant,  and  its  political 
characteristics  accidental  and  subordinate.  It  should  be 
empowered  to  interpret  rights  of  property,  not  to  make 
or  unmake  them. 

Although  discrimination  or  extortion  cannot  for 
moment  be  defended,  it  is  a  matter  of  some  importance 
that  these  offences  should  be  clearly  and  equitably  de- 
fined. Much  litigation  has  already  arisen  out  of  the 
question,  how  far  transportation  companies  can  be  prop- 
erly charged  with  discrimination  for  observing  the  familiar 
distinction  between  wholesale  and  retail  and  between 
constant  and  spasmodic  business. 

The  tenour  of  recent  decisions  is,  so  far,  adverse  to  the 
claim  of  the  transportation  companies  that  they  should 
be  at  liberty  to  carry  at  special  rates  freight  which  they 
can  handle  with  special  ease  and  cheapness. 

The  proposition  (No.  2)  that  "a  railroad  is  a  public 
highway,  the  property  of  the  people,"  is  a  somewhat 
equivocal  proposition,  and  is  susceptible  of  a  great  variety 


RAILROAD   COMMISSIONS.  97 

of  interpretation.  Its  soundness,  and  the  limitations 
under  which  it  can  be  unequivocally  affirmed,  can  of 
course  only  be  determined  by  reference  to  the  history 
and  status  of  each  individual  railroad  ;  but  it  is  notorious 
that  a  very  large  group  of  railroads  were  constructed 
under  substantially  identical  conditions.  Let  us  take  an 
instance  fairly  typical  of  a  large  class,  and  examine  its 
genesis. 

A  State  contemplating  its  vast  undeveloped  resources 
was  struck  with  the  astounding  contrast  which  existed 
between  its  great  potential  wealth  and  its  comparative 
lack  of  cash.  'An  obvious  solution  readily  suggested  itself 
— viz.,  that  the  need  of  the  moment  was  effective  trans- 
portation. But  the  construction  of  an  adequate  railroad 
system  postulated  a  large  immediate  outlay  of  cash, 
amounting  possibly  to  many  millions  of  dollars  ;  and  that 
was  precisely  the  element  which  the  State  did  not  at 
the  moment  command.  The  question  arose,  "  who  will 
become  producers  or  purveyors  of  transportation  ? " 
Native  capitalists  took  up  the  challenge,  and  associated 
themselves  with  foreign  investors  ;  but  it  was  felt  that  the 
risks  to  be  incurred  were  very  serious  indeed.  Rival  roads 
might  be  built ;  commerce  might,  by  the  operation  of 
unforeseen  conditions,  be  diverted  from  its  customary 
channels  ;  panics  might  render  the  permanent  locking  up 
of  capital  dangerous  or  even  fatal  to  the  credit  of  the  in- 
vesting capitalist ;  the  period  of  productiveness  might  be 
indefinitely  postponed  by  delay  in  construction  ;  and  then 
dissatisfaction  of  shareholders  might  develope  into  dis- 
union, and  result  in  irretrievable  loss.  But  still  intending 
producers  of  transportation  were  willing  to  accept  these 
risks,  if  a  satisfactory  inducement  and  protection  were 
offered  in  the  solemn  form  of  a  charter.  It  was  admitted 


98  RAILROAD   COMMISSIONS. 

that  the  State  would,  under  a  charter  duly  offered  and 
accepted,  become  a  lawful  contracting  party ;  and  that 
the  Federal  Constitution  (herein  more  conservative  than 
the  British  Constitution)  imperatively  forbade  State  legis- 
lation which  should  "  impair  the  obligation  of  a  con- 
tract." '  Relying  on  such  assurances,  foreign  capitalists 
were  not  afraid  to  lock  up  large  sums  of  money.  The 
"  public  highway  the  property  of  the  people  "  was  not 
yet  surveyed  or  located.  Its  precise  route — with  the  ex- 
ception of  its  terminal  points  and  general  direction — was 
a  question  for  the  discretion  of  the  chartered  company. 
The  right  of  way,  in  many  instances  the  freehold  of  the 
soil  over  which  the  railroad  was  to  run,  construction,  equip- 
ment and  rolling  stock  were  all  paid  for  in  one  form  or 
another  by  the  company.  If  the  railroad  were  sold  or 
leased,  the  purchase  money  or  the  rent  confessedly  be- 
longed respectively  to  the  vendors  or  lessors,  and  not  to 
the  State  or  its  people.  Whatever  the  right  of  the  State 
or  the  people  to  a  railroad  so  constructed  may  have  been, 
it  was  certainly  not  a  proprietary  right,  sufficient  to  au- 
thorize compulsory  assumption  of  control,  without  some 
equivalent  being  given  in  the  form  of  compensation  or 
indemnity.  The  owners  of  a  limited  right,  privilege  or 
easement  in  connection  with  property  are  of  course  en- 
titled to  have  it  effectually  protected  ;  but  it  does  not 
follow  that,  in  order  to  save  the  trouble  of  devising  a 
mechanism  suitable  for  -such  protection,  the  real  owners 
should  be  divested  of  the  management  of  their  property. 
It  is  proverbially  a  subversion  of  the  natural  order  of 
things  that  the  "  tail  should  wag  the  dog." 

A  good  deal  has  been   said   about   the  obligation   of 
common  carriers  to  serve  the  people  in  accordance  with 

*  Federal  Constitution,  Art.  I,  Sec.  10, 


RAILROAD   COMMISSIONS.  99 

ancient  law  and  custom.  No  doubt,  in  the  absence  of  a 
charter,  this  obligation  might  substantially  govern  the 
question.  But  the  grant  of  a  charter  was  a  statutory 
enactment,  the  formal  act  of  the  people.  It  created  a 
specific  contract,  changed  the  law  of  the  land,  and  altered 
the  relative  situation.  It  was  competent  to  a  State  to 
permit  all  sorts  and  conditions  of  men  to  establish  com- 
mercial enterprises  at  their  own  risk,  subject  to  the  gen- 
eral law  of  the  land  including  (amongst  other  things)  the 
laws  and  customs  relating  to  common  carriers.  It  was 
equally  competent  to  the  State,  in  any  given  case,  to  pass 
a  special  act  embodying  a  specific  contract,  and  thus  to 
define  the  privileges  and  to  determine  the  status  of  a 
particular  enterprise  by  the  express  terms  of  statute  law. 
For  reasons  of  its  own, — which  results  have  shown  to  be 
wise  reasons, — a  State  in  certain  cases  thought  proper  to 
adopt  the  latter  course.  To  claim  the  right  to  confiscate 
privileges  thus  conferred  or  to  change  the  status  thus 
protected,  by  appealing  to  general  laws,  is  something  like 
setting  up  the  statutes  relating  to  intestacy  against  a 
devisee  entitled  under  a  confessedly  valid  will. 

It  may  be  pertinent  to  observe  closely  what,  in  such  a 
typical  instance  as  above  mentioned,  the  State  did  not,  as 
well  as  what  it  did,  offer  by  way  of  inducement  to  capital- 
ists to  accept  extraordinary  risks.  It  emphatically  did  not 
say  :  You  are  invited  to  become  the  occupiers  of  ancient 
highways;  the  railroad  in  which  you  invest  your  capital 
will  become  the  property  of  the  people,  and  you  will  be 
virtually  their  tenants  at  will.  It  did  not  say :  If  you  fail, 
or  as  long  as  your  enterprise  is  unproductive,  your  loss 
will  be  all  your  own  ;  but,  if  you  succeed,  you  will  always 
remain  exclusively  liable  for  losses,  while  your  profit  will 
be  limited  by  the  people  at  their  discretion.  It  did  not 


100  RAILROAD   COMMISSIONS. 

say :  You  are  invited  to  sink  large  sums  of  ready  money 
in  the  construction  of  permanent  works  on  American  soil. 
Any  increment  in  value  which  may  hereafter  accrue  to 
your  railroad  will  be  dealt  with  as  the  people  think  best. 

What  the  State  did  say  was  of  a  very  different  kind. 
It  said  in  effect :  It  is  competent  to  us  to  exercise  the 
right  of  eminent  domain  for  the  public  good.  We  say 
that,  in  view  of  a  great  public  need,  the  present  is  a 
proper  case  for  such  exercise ;  and,  if  you  will  lock  up 
some  millions  of  capital  for  our  benefit,  we  can  lawfully 
offer  you  the  power  of  recouping  yourselves  by  the 
product  of  your  railroads,  to  be  realized  under  your  own 
management  and  distributed  at  your  own  discretion. 
The  increase  of  our  State  wealth  which  you  will  effect  for 
us  justifies  us  in  giving  you  this  solemn  assurance  in  the 
name  of  the  people,  and  in  making  it  part  of  the  statute 
law. 

By  such  an  arrangement  the  inherent  power  of  the  State 
to  "  regulate  "  was  not  for  a  moment  waived,  but  the  inter- 
change of  consideration  between  the  State  and  the  com- 
pany was  emphasized.  The  State  did  not  by  becoming  a 
contracting  party  abdicate  any  of  its  functions  as  a  State ; 
but  it  brought  itself,  quo  ad  the  subject-matter  of  a  par- 
ticular contract,  within  the  provisions  of  the  Federal  Con- 
stitution, and  thereby  conferred  on  contracting  companies 
the  right  to  protection  in  the  Federal  courts.*  It  cannot 
be  doubted  that,  if  it  had  been  sought  to  import  into  a 
charter  at  the  date  of  its  grant  any  one  of  the  conditions 
first  above  formulated,  such  charter  would  have  been  de- 
clined with  thanks  by  intending  grantees.  Results  have 
conclusively  shown  that  charters  granted  to  railroads  have 
proved  enormously  beneficial  contracts  to  those  States 

*  The  Bridge  Proprietors  vs.  The  Hoboken  Co.     I  Wai.  116. 


RAILROAD   COMMISSIONS.  IOI 

which  were  fortunate  or  far-sighted  enough  to  obtain 
willing  grantees. 

As  regards  No.  3,  nobody  doubts  the  power  of  a  State 
to  assume  the  ownership  of  railroads  upon  proof  that 
such  a  course  is  for  the  public  good  and  upon  payment 
of  just  compensation.  Nobody  questions  its  right  to  in- 
stitute appropriate  tribunals  for  the  redress  or  prevention 
of  wrong  and  for  the  purposes  of  "  regulation,"  properly  so 
called.  But  the  representatives  of  chartered  interests 
may  not  unreasonably  object,  if  "  regulation  "  be  so  con- 
strued as  to  warrant  a  compulsory  divorce  between  own- 
ership and  management,  which  would  leave  them  wholly 
responsible  for  losses,  but  deprive  them  of  the  correlative 
power  of  realizing  and  controlling  profits. 

They  may  properly  contend  that  a  tribunal  authorized 
to  redress  or  prevent  wrong  is  an  expression  of  the  sover- 
eign power  compatible  with  corporate  ownership ;  but 
that  a  Commission  authorized — in  the  face  of  existing 
charters  —  to  fix  rates  and  limit  dividends  would  wield 
powers  incompatible  with  the  control  essential  to  the 
free  enjoyment  and  succcessful  management  of  corpo- 
rate property.  If  State  officers  are  empowered  to  set- 
tle tariffs,  restrict  dividends,  and  order  additional  out- 
lay for  purposes  outside  the  requirements  of  public  safe- 
ty, it  is  obvious  that  the  solution  of  leading  problems 
of  railroad  administration  will  be  practically  transferred 
to  the  State.  It  will  be  competent  to  the  State  to  de- 
termine the  earning  power  of  a  railroad,  the  dividends 
payable  on  its  stock,  the  distribution  between  the  peo- 
ple and  the  corporation  of  the  increment  of  value,  and 
perhaps  the  liability  of  stockholders  for  further  expendi- 
ture. But  the  entire  responsibility  for  losses  incident  to 
defective  or  unfortunate  State  management  will  be  left 


102  RAILROAD   COMMISSIONS. 

on  the  shoulders- of  the  corporation.  It  must  be  admit- 
ted that  this  would  be  an  experiment  in  paternal  govern- 
ment, which  might  or  might  not  be  wise,  but  which,  if 
made  at  all,  must  be  made  at  the  sole  risk  of  the  cor- 
porations. 

Nor,  in  view  of  the  relations  subsisting  between  la- 
bour and  capital,  is  this  risk  by  any  means  trivial  or  im- 
aginary. 

To  refer  to  a  well-known  instance  (cited  below  *),  the 
Supreme  Court  of  the  State  of  New  York  has  recently 
decided  that  corporations  can  be  compelled  by  manda- 
mus to  handle  promptly  all  freight  offered  for  transporta- 
tion in  the  face  of  a  strike  of  the  freight-handlers.  In  a 
city  which  receives  and  distributes  an  enormous  amount 
of  produce,  this  is  a  very  serious  obligation.  If  a  cor- 
poration be  thus  bound  and  liable  for  losses  arising  out 
of  delay  in  moving  sensitive  or  perishable  freight,  it 
must — in  order  to  economize  such  losses — either  pay 
such  prices  for  labour  as  strikers  insist  on,  or  procure 
unskilled  labour  to  do  their  work.  Now,  where  a  cor- 
poration can  control  its  own  tariff  (within  the  limits  of 
a  liberal  maximum),  and  thus  protect  itself  against 
emergencies,  the  obligation  to  handle  promptly  all 
freight  offered  by  the  public  is  a  measurable  commer- 
cial risk.  But,  if  a  State  which  does  not  actively  discour- 
age labour  combinations  neither  permits  corporations  to 
protect  themselves  by  raising  rates  to  meet  the  fluctua- 
tions of  the  labour  market,  nor  itself  bears  any  portion 
of  the  loss  arising  from  its  official  adjustment  of  the  tar- 
iff during  the  existence  of  a  strike,  it  creates  a  divorce  be- 
tween management  and  responsibility.  It  disarms  the 

*  Attorney-General  ex.  rel.  People  of  the  State  of  New  York  vs.  N.  Y. 
Central  and  Erie  R.  R,  Companies.  Not  reported  at  date  of  writing. 


RAILROAD   COMMISSIONS.  IO3 

corporations  by  official  intervention,  and  then  leaves 
them  solely  liable  for  the  losses  incident  to  their  dis- 
armed condition.  It  assumes  a  leading  administrative 
function,  without  accepting  the  correlative  responsibil- 
ity for  loss.  The  corporation  must  procure  labour  at 
such  prices  as  it  can,  under  pain  of  heavy  damages,  but 
it  may  charge  for  transportation  only  what  the  State  pre- 
scribes. The  tale  of  bricks  is  not  diminished,  but  the 
maker  must  gather  stubble  where  he  can  find  it.  If  this 
be  so,  it  is  perhaps  not  unreasonable  that,  if  the  corpora- 
tions remain  solely  liable  for  losses,  they  should  resent 
the  transfer  of  important  administrative  functions  from 
responsible  proprietors  to  elective  State  officers. 

It  would  be  idle  to  pretend  that  in  America  the  general 
results  of  government  administration  in  any  sphere  that 
can  be  named  compare  favourably,  in  respect  either  of 
economy  or  efficiency,  with  those  of  private  administra- 
tion. The  conclusions  of  Parliamentary  Committees  in 
England  are,  on  the  whole,  unfavourable  to  government 
interference  with  railways  outside  the  limits  of  "  regula- 
tion "  in  the  ordinary  sense  of  the  term.  The  chances  of 
success  would  be  still  further  reduced  if  a  government  ar- 
bitrarily assumed  leading  administrative  functions,  but 
left  with  corporations  the  entire  liability  for  losses  inci- 
dent to "  defective  or  unfortunate  State  management. 
Would  any  thoughtful  person  seriously  contend  that 
you  could  advantageously  "  regulate."  the  business  of 
the  Bank  of  England  by  transferring  the  control  of  the 
bank  rate  to  a  government  official?  The  truth  would 
seem  to  be  that  discretion  and  responsibility  are  true 
yoke-fellows,  and  each  performs  best  in  the  company  of 
its  mate. 

From  the  point  of  view  of  a  railroad  corporation,  the 


104  RAILROAD   COMMISSIONS. 

wise  adjustment  of  rates  is  the  seed-time,  and  the  distri- 
bution of  dividends  is  the  harvest.  Knowledge  of  admin- 
istration is  not  a  mere  aptitude,  but  an  acquirement ;  and 
it  would  seem  that  the  self-interest  which  is  an  incident  of 
proprietorship  supplies  more  trustworthy  incentives  to 
sustained  effort  and  to  the  development  of  technical  skill 
than  can  be  looked  for  in  disinterested  government  ad- 
ministration. A  chartered  corporation  may,  in  many 
cases,  fairly  contend  that  it  has  legitimately  acquired  for 
valuable- consideration  the  exclusive  right  to  manage  its 
own  property  in  conformity  with  law ;  that  its  charter  is 
part  of  that  law  ;  that  its  executive  is  specially  trained 
for  its  purpose ;  and  that  amateur  dry-nursing  by  the 
State  would  at  once  impair  its  business  and  increase  its 
expenditure.  It  may  urge  with  some  reason  that,  if  the 
State  desires  to  administer  a  railroad,  it  has  the  right  to 
become  its  proprietor*;  but  that,  before  it  can  justly 
assume  the  functions  of  proprietorship,  it  must  first 
become  a  purchaser.  Ex  post  facto  legislation,  involving 
a  compulsory  transfer  of  property  or  right  without  com- 
pensation, needs  to  be  supported  by  singularly  cogent 
reasons  if  it  is  to  command  the  assent  of  fair  minds. 

It  must  not  be  overlooked  that  the  power  of  a  State  to 
compel  the  good  behaviour  of  corporations  within  its  juris- 
diction, without  having  recourse  to  the  assumption  of  ad- 
ministrative functions,  is  very  large.  Moreover,  even  if  a 
corporation  behaves  well  but  makes  a  very  large  profit, 
the  State  can  compel  the  transfer  of  ownership  to  itself  by 
purchase.  Consequently  the  profit  which  can  be  realized 
by  any  given  corporation  cannot  permanently  exceed  the 
limit  at  which  it  becomes  to  the  interest  of  the  State  to 

*  Pontchartrain  R.  R.  Co.  vs.  Orleans  Navigation  Co.      15  La.  Ann.,  404- 


RAILROAD   COMMISSIONS.  1 05 

assume  ownership.  This  is  in  itself  a  power  of  no  mean 
cogency.  But  its  indirect  value  is  increased  by  the  cir- 
cumstance that  the  corporations  possess  no  correlative 
power  to  compel  the  State  to  purchase.  The  possession 
of  such  a  power  would  of  course  have  furnished  them  with 
an  appreciable  measure  of  protection,  because  the  State 
would  be  very  cautious  in  modifying  privileges  or  enlar- 
ging risks  to  which  it  might  hereafter  succeed  or  besubro- 
gated  by  the  action  of  the  corporations.  In  the  absence 
of  such  a  power,  it  is  no  doubt  more  advantageous,  from 
the  point  of  view  of  the  advanced  reformer,  for  the  State 
to  control  profits  and  decline  risks  than  by  assuming  own- 
ership to  take  over  profits  and  risks  together. 

As  regards  limitation  of  dividends  (No.  4),  it  is  obvious 
that  rates  might  be  so  "  fixed  "  by  the  representatives  of  the 
people  that  any  discussion  relating  to  dividend  might  be- 
come superfluous.  But  the  power  claimed  under  this  head 
deserves  special  notice,  because  it  presents  a  tangible  issue 
between  State  legislation  and  the  Federal  Constitution, 
and  accentuates  the  hardship  which  might  through  its 
operation  be  inflicted  on  companies. 

It  will  not  be  denied  that,  in  the  case  of  many  existing 
charters  containing  no  specific  provision  as  to  limitation 
of  dividend,  the  more  or  less  remote  prospect  of  the 
amplest  dividend  possible  under  the  charter  formed  a  real 
factor  in  the  consideration  offered  by  one  of  the  contract- 
ing parties  and  relied  on  by  the  other.*  Such  prospect 
was,  in  fact,  the  commercial  equivalent  for  the  acceptance 
of  extraordinary  risks.  It  needs  some  courage  to  contend 
that  legislation,  which  gratuitously  confers  on  Commis- 
sioners the  power  of  indefinitely  limiting  this  prospect, 

*  Binghampton  Bridge  Case.  3  Wai.  51.  See  remarks  of  Davis,  Ch.  J., 
as  to  purposes  of  grants  to  corporations. 


106  RAILROAD   COMMISSIONS. 

does  not  "  impair  the  obligation  of  a  contract,"  or  that 
"regulation"  is  broad  enough  to  cover  the  confiscation 
of  valuable  rights  of  contract.*  It  is  indeed  said  that 
Commissioners  would  always  be  competent  and  trust- 
worthy. But,  assuming  that  to  be  so,  it  does  not  answer 
the  objection.  A  corporation  subjected  to  arbitrary  ex- 
ternal control  is  no  longer  master  of  itself,  but  is,  in  prin- 
ciple, placed  at  the  mercy  of  others  outside  its  organiza- 
tion and  having  no  proprietary  interest  in  its  welfare.  It 
is  not  necessary  to  contend  that  Commissioners  would  be 
likely  to  exercise  their  powers  wrongfully  or  even  capri- 
ciously. It  may  be  quite  true  (and  in  the  writer's  opinion 
is  true)  that  the  Commissioners  heretofore  selected  by  the 
States  which  have  in  part  or  in  whole  adopted  the  pro- 
gramme of  reform  are  honest  and  competent  officers. 
But  the  objection  is  that  existing  rights  of  property  can- 
not fairly  be  made  by  ex  post  facto  legislation  to  depend 
on  the  exercise  of  official  discretion. 

It  is  obvious  that  an  honest  fluctuation  in  the  constitu- 
tion and  opinions  of  successive  Commissions  might  well 
produce  serious  injury.  Suppose  the  case  of  a  solvent 
corporation  which  to-day  pays  seven  per  cent,  on  its 
stock.  Three  Commissioners  might  to-day  decide  on  a 
limit  of  ten  per  cent.  That  would  be  reassuring,  and  the 
stock  might  retain  its  market  value.  Within  six  months 
two  of  those  three  Commissioners  might  die  or  become 
disqualified.  Their  successors  might  be  of  the  opinion 
that,  whatever  the  conclusion  of  the  former  Commission- 
ers might  have  been,  they  now,  in  the  light  of  new  evi- 
dence affecting  the  history  of  the  road,  consider  three  or 
four  per  cent,  a  fair  limit.  The  conclusion  of  the  Com- 
missioners might  be  perfectly  conscientious ;  but  what 

*  Green  vs.  Biddle.     8  Wheat  i. 


RAILROAD   COMMISSIONS.  IO/ 

becomes  of  the  non-resident  stockholder  or  trustee  who 
has  pinned  his  faith  to  a  charter  ?  The  data  to  which,  in 
extreme  cases,  it  is  proposed  that  Commissioners  shall 
have  recourse  in  determining  the  dividend  payable,  include 
broadly  all  the  antecedents  of  a  railroad — the  cost  of  its 
construction,  the  financial  history  of  its  securities,  the 
conditions  and  method  of  transportation,  and  many  other 
details  which  it  is  unnecessary  here  to  specify.  It  is 
enough  for  the  present  purpose  to  point  out  that  regula- 
tion as  a  corrective  of  abuses  is  one  thing,  and  regulation 
as  a  mask  for  the  confiscation  of  vested  rights  is  quite 
another. 

Nor  would  the  evil  in  such  a  case  cease  with  the  first 
loss  inflicted  on  the  stockholders.  The  future  stability  of 
the  value  of  their  securities  would  be  grievously  shaken. 
If  you  want  to  undermine  the  prosperity  of  a  solvent  cor- 
poration or  to  check  the  recovery  of  a  depressed  one,  you 
cannot  do  better  than  legislate  away  whatever  stability 
its  securities  possess.  Thenceforward  they  become  a  foot- 
ball for  the  "  Street " ;  and  there  is  a  prospect  once  in 
every  five  or  ten  years  of  a  foreclosure  accompanied  by 
unlimited  litigation.  The  foreign  stockholder  contributes 
his  share  towards  paying  the  piper,  but  he  has  practically 
no  voice  in  the  selection  of  the  tune. 

Apart  therefore  from  its  legality,  such  legislation  as 
last  above  mentioned  has  the  serious  fault  of  tending  to 
shake  public  confidence  and  to  alienate  foreign  capital. 
Nor  is  its  constitutionality,  from  the  point  of  view  of  a 
State  itself,  entirely  free  from  doubt.  The  modification 
of  chartered  rights- — not  as  a  penal  measure  but  for  the 
public  good — is  a  legislative,  not  a  ministerial  act.  The 
question  inevitably  occurs,  Can  a  State  lawfully  and  con- 
stitutionally by  one  act  delegate  for  a  term  of  years  to 


108  RAILROAD   COMMISSIONS. 

Commissioners,  to  bankers,  or  to  a  fiscal  agent,  the  con- 
tinuing power  of  finally  deciding  what,  from  time  to  time, 
is  or  is  not  for  the  public  good  ?  Is  the  power  of  Eminent 
Domain  susceptible  of  unlimited  delegation  as  against  re- 
luctant third  persons  ;  and,  if  not,  what  are  the  limits?  It 
may  be  noted  in  passing  that  to  impose  a  special  tax  on 
stockholders,  in  order  to  provide  the  cost  of  limiting  their 
dividends,  savours  of  hardship.  It  is  rather  like  seething 
"  the  kid  in  his  mother's  milk." 

If  the  irregularity  complained  of  be  extortion  or  dis- 
crimination, legislation  limiting  dividends  would  seem  to 
apply  a  corrective  in  the  wrong  place.  It  is,  on  the 
whole,  more  tolerable  to  restrict  the  method  of  farming 
than  first  to  encourage  unrestricted  outlay  by  the  farmer 
and  then  to  confiscate  part  of  his  harvest.  If  legislative 
coercion  be  needed,  it  is  the  business  of  the  statesman  to 
see  that  it  be  applied  in  the  right  place ;  that  the  mode 
of  application  combine  the  maximum  of  force  with  the 
minimum  of  friction  ;  that  his  remedy  be  proportionate,  in 
point  of  severity,  to  the  irregularity  complained  of ;  and 
that  it  will  not  (except  where  an  explicit  penalty  is  im- 
posed on  the  wrong-doer)  irreparably  injure  the  fortunes, 
or  impair  the  public  efficiency,  of  the  enterprise  to  which 
it  may  be  applied.  Restriction  of  dividends,  considered 
as  a  remedy  for  discrimination  or  extortion,  can  scarcely 
be  taken  to  fulfil  these  conditions. 

Mature  consideration  of  the  subject  of  Railroad  Com- 
missions is  to-day  tending  towards  a  preference  for  the 
grant  of  moderate,  as  distinguished  from  extreme,  powers. 
Though  the  opinion  of  the  United  States  Supreme  Court 
at  Washington  must,  on  the  whole,  be  taken  to  incline 
towards  the  law  laid  down  in  the  "  Granger"  cases,  there 
are  wholesome  symptoms  of  dissent  from  that  somewhat 


RAILROAD   COMMISSIONS.  109 

extreme  interpretation  of  the  law.  In  any  event,  an  in- 
tending investor  will  do  well,  before  selecting  any  par- 
ticular State  as  a  sphere  of  investment,  to  examine  the 
powers  conferred  on  Commissioners' and  the  exercise 
made  of  them  as  embodied  in  their  annual  report.  He 
will  probably  conclude  that  advisory,  or  even  moderate 
compulsory,  powers  exercised  by  competent  men  are 
thoroughly  beneficial  to  railroad  property,  but  that  the 
grant  of  drastic  powers  involves  many  perils  and  risks 
from  the  investor's  point  of  view. 


•CHAPTER   XV. 

VESTED   INTERESTS. 

AMONG  the  most  striking  traits  of  the  American  national 
character  are  the  singular  elasticity  with  which  it  recovers 
from  disasters,  and  the  rapidity  with  which  it  throws  the 
past  behind  its  back.  Few  more  remarkable  passages  of 
history  can  be  found  than  that  which  records  America's 
resurrection  after  the  close  of  the  great  Civil  War.  Long 
before  people  had  ceased  to  discuss  its  tremendous  inci- 
dents, the  nation  was  again  in  full  march  towards  pros- 
perity and  wealth.  Again,  the  Chicago  fire  was  a  very 
sharp  and  decisive  calamity.  But  a  new  city  arose  from 
the  ashes  with  unprecedented  speed,  and  in  the  twinkling 
of  an  eye  the  past  was  left  behind.  This  kind  of  recupera- 
tive power  reasonably  inspires  the  foreign  investor  with 
courage  and  hopefulness.  But  the  observer  will  be  apt  to 
note  that  facility  in  throwing  the  past  behind  our  backs 
is  a  more  or  less  two-edged  weapon.  From  the  investor's 
point  of  view,  it  is  a  serious  question  what  is  the  subject- 
matter  that  is  thus  easily  forgotten.  If  it  is  a  loss  or  a 
toothache,  well  and  good.  If  it  is  a  mortgage  or  a  valuable 
consideration,  the  memory  and  benefit  of  which  ought  to 
be  permanent  until  they  have  been  respectively  discharged 
or  recognized,  the  case  is  somewhat  altered.  Perhaps  the 
most  striking  instances  of  this  short  memory  have  been 
afforded  by  States  which  have,  in  whole  or  in  part,  repu- 
diated loans  of  which  they  were  sorely  in  need  at  the  time 

JIQ 


VESTED  INTERESTS.  Ill 

of  contracting  them,  or  have  repudiated  subsequent  com- 
positions assented  to  by  both  lenders  and  borrowers  after 
a  fair  consideration  of  the  circumstances  proper  to  the 
particular  case.  Instances  are  not  lacking  in  which  the 
lenders'  rights  have  been  frankly  disregarded,  in  spite  of 
the  fact  that  the  very  railroads  on  which  the  borrowed 
money  was  expended  had  for  years  been  largely  contrib- 
uting to  State  wealth,  and  are  doing  so  to-day. 

Securities  of  this  class,  although  their  amount  is  not  in- 
considerable, will  probably  possess  a  very  limited  interest 
for  our  enquirer.  He  will  therefore  be  content  to  note 
one  or  two  salient  points  connected  with  current  contro- 
versies. These  may  be  worth  passing  attention,  because 
they  illustrate  to  some  extent  the  incidents  of  State  rights 
in  their  bearing  on  broader  questions  of  vested  interests 
in  property  generally.  First,  then,  he  will  do  well  to  beaf 
in  mind  that  a  State  claims  the  rights  and  immunities 
of  sovereignty.  An  aggrieved  person  who  desires  to  sue 
a  State  may  find  himself  checkmated  by  a  great  variety  of 
tactics.  Under  certain  conditions  a*  State  may  decline  to 
permit  itself  to  be  sued — except  in  courts  possessing  a 
particular  jurisdiction — in  respect  of  a  claim  the  merits  of 
which  it  does  not  explicitly  deny.  That  is  a  serious  dis- 
appointment to  a  suitor  who  is  perhaps  a  good  swordsman 
and  would  like  to  fight  his  opponent  according  to  the  es- 
tablished etiquette  of  the  arena.  He  has  issued  his  chal- 
lenge, but  his  opponent  politely  declines  to  fight.  The 
Executive  of  the  State  claims  to  be,  in  a  certain  sense,  at 
once  the  trustee  and  the  servant  of  the  sovereign  people. 
It  can  meet  the  challenge  of  a  suitor  with  a  simple  "  Non 
possumus"  That  is  a  line  of  defence  very  difficult  to 
break  down,  because,  by  availing  itself  of  this  mode  of 
obstruction,  the  State  need  not  take  into  account  the 


112  VESTED  INTERESTS. 

specific  merits  of  a  suitor's  claim.  There  is  left  to  the 
aggrieved  person  an  appeal  ad  misericordiam.  So  long  as 
he  is  aware  of  the  limit  of  his  power,  "  forewarned  is  fore- 
armed." But  it  is  always  weak,  and  sometimes  dangerous, 
to  confuse  the  right  of  entreaty  with  the  possession  of  a 
valid  remedy.  Concerning  his  rights  in  the  Federal 
courts  one  or  two  comments  will  be  found  below. 

But  the  obstructions  which  the  suitor  may  meet  with  in 
any  effort  to  enforce  his  alleged  rights  are  not  confined  to 
the  power  of  the  State  Executive  to  decline  his  challenge. 
He  has  to  reckon  with  State  Legislatures,  and  therefore 
with  demagogues  of  many  types  who  (side  by  side  with 
many  honourable  and  distinguished  Statesmen)  sit  there- 
in. In  the  hands  of  a  clique  of  demagogues,  who  are 
described  in  vernacular  language  as  "  on  the  make  "  and 
who  have  their  own  axes  to  grind, — a  mode  of  procedure 
which  may  be  roughly  described  as  "  hook  and  eye  "  leg- 
islation is  a  tremendous  engine.  This  designation  is  sim- 
ply adopted  for  lack  of  a  better  term,  and  is  not  sufficiently 
clear  to  justify  the  writer  in  dispensing  with  some  words 
of  explanation.  Its  distinctive  feature  consists  in  the 
notion  of  carrying  by  two  or  more  separate  and  distinct 
bills  a  measure  which  would  certainly  be  rejected  if  its 
principles,  purposes  and  incidents  had  been  considered  as 
a  whole.  It  is  easy  to  the  adroit  manipulator  of  legisla- 
tive procedure  so  to  marshal  and  to  arrange  the  se- 
quence of  his  bills  that  the  first  instalment  of  the  proposed 
legislation  in  view  appears  not  only  harmless,  but  abso- 
lutely patriotic  and  noble.  Once  grant  that  the  first 
instalment  is  meritorious  and  has  become  law,  the  second 
follows  as  a  logical  sequence.  Yet,  if  both  the  bills  had 
been  considered  together,  the  net  result  would  have  been 
palpably  unjust,  and  legislation  promoting  it  would  have 


VESTED  INTERESTS.  113 

been  certainly  rejected.  But  by  the  "  hook  and  eye  " 
system  a  result,  which  the  Legislature  would  not  approve 
as  a  whole,  can  be  smuggled  through  by  instalments. 
Perhaps  an  illustration  may  make  reasonably  clear  a  situa- 
tion which  it  would  be  difficult  to  present  intelligibly  in 
abstract  form.  Let  us  suppose  that  a  clique  of  repudia- 
tors  desires  to  evade  the  obligation  of  a  State  loan.  To 
announce  this  view  explicitly  would  be  to  invite  defeat. 
How  shall  we  go  to  work  to  pass  the  bill  we  desire  ?  The 
following  is  a  mere  illustration.  Patriotic  member  states 
that  the  moral  sense  of  the  community  is  in  favour  of  an 
equitable  compromise  with  the  State's  creditors.  He 
therefore  proposes  to  issue  new  bonds  to  the  holders  of 
State  securities,  in  exchange  for  old  outstanding  bonds 
which  will  be  destroyed  in  due  course  contemporaneously 
with  the  new  issue.  A  proper  mechanism  is  devised  for 
surrender  and  exchange,  and  outstanding  bonds  are  freely 
surrendered.  That  is  the  "  hook  "  side  of  the  proposed 
legislation.  Now  for  the  "  eye  "  side.  There  now  comes 
to  the  front  a  member  even  more  patriotic  than  the  first. 
He  is  weary  of  the  economical  extravagances  of  the  oppo- 
site political  party.  They  have  committed,  he  says,  a  sin 
which  no  patriot  ought  to  overlook.  They  have  allowed 
payments  of  interest  on  State  loans  to  be  made,  without 
being  passed  on  by  the  people,  and  without  a  specific 
appropriation  by  the  Legislature  for  every  one  of  such 
payments.  His  duty  to  his  constituents  compels  him  to 
protest  against  such  an  outrage,  and  to  erect,  so  far  as 
may  be,  some  kind  of  constitutional  barrier  by  which  this 
wave  of  partisan  extravagance  may  be  checked.  The 
people,  he  says,  acting  through  their  elected  representa- 
tives, ought  to  pass  on  every  such  important  and  vital 
payment.  It  is  their  duty  as  well  as  their  privilege  to  do 


114  VESTED  INTERESTS. 

so.  He  therefore  begs  to  introduce  a  bill  by  virtue  of 
which  the  Treasurer  is  forbidden  to  make  any  payment 
from  the  Treasury  on  account  of  State  indebtedness, 
unless  or  until  a  legislative  appropriation  has  been  made 
for  that  purpose.  This  proposal  he  makes  with  reluct- 
ance. But  it  is  so  obviously  essential  to  economic  reform 
in  the  State,  in  the  Legislature  of  which  he  has  the 
privilege  of  sitting,  that  he  has  no  hesitation  in  asking 
the  support  of  the  House.  His  emotion  is  unmistakable. 
No  one  doubts  his  sincerity,  because  he  tears  his  hair  and 
smites  the  table.  The  bill  is  passed  on  purely  patriotic 
grounds.  The  "  wire-puller  "  has  the  satisfaction  of  seeing 
that  he  has  fitted  the  "hook"  into  the  "eye."  The 
result  is  that  the  holders  of  the  new  bonds  get  nothing. 
But  this  result  could  never  have  been  obtained  if  the  sub- 
ject had  been  considered  as  a  whole. 

Partisans  in  this  country  who  favour  the  dark  and 
sometimes  tricky  tactics  of  State  legislation  are  flattered 
by  the  belief  that  their  system  has  the  countenance  and 
approval  of  so  great  a  statesman  as  Mr.  Gladstone.  His 
proposal  to  pass  his  bill  for  extension  of  suffrage  first,  and 
then — with  the  help  of  the  logical  inferences  and  the  pre- 
ponderating strength  derived  therefrom — to  settle  the  dis- 
tribution of  seats  in  his  own  way,  is  thought  here  to  be 
about  the  best  illustration  of  "hook  and  eye"  legislation 
which  the  world  has  so  far  witnessed.  Of  course,  tactical 
skill  in  interpreting  the  conditions  of  parliamentary  pro- 
cedure will  always  prevail  in  democratic  communities, 
whose  form  of  government  lends  itself  with  peculiar  facil- 
ity to  the  adroit  manipulation  of  rings.  But  experience 
shows  that  the  best  way  to  meet  this  complication  is 
frankly  and  fairly  to  show  up  the  trick ;  and  as  far  as  pos- 
sible to  debate  revolutionary  measures  in  full  view  of 


VESTED  INTERESTS.  11$ 

their  incidents,  conditions  and  whole  environment.  As  a 
matter  of  course,  the  bills  introduced  in  the  Virginia  Leg- 
islature— and  popularly  known  as  "  coupon  killers," — have 
the  benefit  of  relationship  to  Mr.  Gladstone's  method. 
But  they  scarcely  commend  themselves  to  the  minds  of 
those  observers,  who  think  that  adroit  manipulation  of 
parliamentary  procedure  ought  not  to  be  allowed  to  ob- 
scure or  supersede  the  ultimate  objects  which  both  Parlia- 
ment and  procedure  are  designed  to  answer.  In  America, 
as  in  England,  too  much  weight  is  attached  and  too 
serious  incidents  are  permitted  to  arise  out  of  mere  adroit- 
ness in  the  management  of  legislative  and  parliamentary 
details.  As  the  whole  concern,  including  party  govern- 
ment, tenure  of  office  by  particular  men  and  so  forth,  is, 
in  the  last  resort,  merely  a  part  of  a  mechanism  intended  to 
secure  good  government  and  substantial  justice  to  all 
classes  of  the  community,  "  hook  and  eye  "  legislation  is 
plainly  a  thing  to  be  deplored  on  principle  ;  no  matter 
whether  the  "  coupon-killing"  Virginia  Legislature  or  Mr. 
Gladstone  be  considered  its  most  skilful  exponent. 

An  equally  good  illustration  is  afforded  by  another  as- 
pect of  the  controversy  between  the  foreign  bondholders 
and  the  State  of  Virginia.  Programme  of  "hook"  bill: 
Propose  a  settlement  on  the  basis  that  the  coupons  of 
State  bonds  are  to  be  available  for  payment  of  State 
taxes.  Make  this  proposal  on  highest  known  moral 
grounds  connected  with  the  integrity,  the  dignity  and 
the  unswerving  good  faith  of  a  great  and  sovereign  peo- 
ple. The  proposed  legislation  is  at  once  morally  fine  and 
—within  limits — pecuniarily  satisfactory  to  the  bond- 
holders. But  the  "  eye  "  bill,  which  appears  at  least  as 
high-toned  in  its  purposes  and  aspirations  as  its  predecessor, 
deplores  the  romantic  circumstance  that  innumerable 


Il6  VESTED  INTERESTS. 

forged  coupons  are  floating  round,  and  proposes  that  no 
coupon  shall  be  receivable  for  taxes  until  it  has  been  sub- 
jected to  the  test  of  an  ordeal  which  virtually  deprives  it 
of  its  value.  The  coupon-holder,  forsooth,  is  asked  to 
pay  his  taxe's  in  cash  and  submit  his  coupon  for  official 
investigation.  If  the  "hook"  bill  and  the  "eye"  bill 
had  been  considered  together,  and  their  incidents  investi- 
gated as  a  whole,  the  injustice  of  the  net  result  would 
have  been  apparent  and  its  absurdity  would  have  ensured 
and  expedited  its  funeral.  The  stock  argument  that 
State  loans  were  frequently  issued  by  legislatures  which 
did  not  represent  the  people  is  at  once  too  musty  and  too 
feeble  to  need  more  than  a  passing  word.  A  sovereign 
people  devises  for  itself  the  political  mechanism  which  it 
considers  most  suitable  to  its  requirements.  Outside 
parties  have  rightly  no  voice  at  all  in  determining  its  jus- 
tice, adequacy  or  efficiency.  It  follows  that  no  State  can 
properly  set  up  the  imperfection  of  its  own  machinery 
against  innocent  third  parties,  who  had  every  right  in  the 
world  to  suppose  that  a  sovereign  people  would  elect  its 
government  in  its  own  way,  and  would  be  responsible  for 
the  incidents  of  its  representative  character.  It  was  prob- 
ably rather  on  the  strength  of  this  than  of  any  other 
argument  that  the  English  people  paid  the  "Alabama" 
claims.  What  is  sauce  for  the  goose  is  sauce  for  the 
gander. 

There  is  another  set  of  securities  on  which  our  en- 
quirer may  think  it  worth  while  to  make  one  or  two  pass- 
ing notes,  viz. :  those  which  consist  of  American  land, 
either  purchased  outright  for  the  purpose  of  mineral  or 
agricultural  operations,  or  accruing  to  railroad  corporations 
under  the  system  of  land  grants.  It  is  scarcely  necessary 
to  point  out  that  the  interests  of  foreign  investors  in 


VESTED  INTERESTS.  1 1/ 

lands  held    under   the   latter   system    vastly    exceed    in 
amount  those  acquired  by  direct  purchase. 

The  tendency,  above  referred  to,  to  forget  or  ignore  the 
valuable  consideration  contributed  by  the  foreign  investor 
in  payment  for  his  interest  in  land-grants  forms  a  very 
striking  feature  of  legislative  activity  in  America  to-day. 
A  great  deal  has  been  said  and  written  about  the  rapid 
decrease  of  the  vast  domain  owned  by  the  United  States, 
and  its  absorption  by  corporations  including  a  large 
foreign  element,  or  by  foreign  purchasers  in  their  own 
undivided  right.  It  is  said  that  the  land  held  by  the 
United  States  is  immensely  valuable  to-day ;  and  that 
this  circumstance  shows  up  in  strong  relief  the  wasteful- 
ness and  absurdity  of  parting  with  any  of  it  to  railroad 
corporations  or  foreign  investors.  If  the  gist  of  these  re- 
monstrances merely  amounts  to  the  statement  that,  in 
the  alienation  of  government  lands,  there  has  been  much 
extravagance  and  some  jobbery,  no  one  intimately  ac- 
quainted with  Washington  business  will  for  a  moment 
doubt  the  substantial  truth  of  the  allegation.  The  point 
that  strikes  the  observer  most  forcibly  in  connection  with 
this  contention  is  that  the  vast  and  valuable  consideration 
paid  by  the  persons  who  are  interested  in  railroad  grants 
is  either  deliberately  ignored  or  unaccountably  overlooked. 
Let  us  examine  for  a  moment  the  conditions  attending  a 
railroad  grant  of  the  most  conventional  type.  In  a  given 
State  the  United  States  Government  owns  several  mil- 
lions of  acres.  A  great  part  of  this  vast  tract  is  intrinsically, 
in  a  potential  sense,  very  valuable ;  in  some  places  rich  in 
mineral  wealth,  in  others  abundant  in  valuable  timber, 
and  again  in  others  admirably  adapted  for  agricultural 
development.  Desiring  to  realize  from  the  sale  of  these 
lands  a  reasonable  contribution  to  the  national  ex- 


VESTED  INTERESTS. 

chequer,  the  United  States  Government  repeatedly  offered 
them  for  sale  at  fabulously  low  prices.  The  answer  of 
the  really  practical  judge  of  values  was  consistently  un- 
favourable, and  purchasers  could  not  be  found.  No  doubt 
the  land  was  rich  in  intrinsic  elements  of  wealth ;  but  it 
lacked  one  vital  condition  of  success,  viz.  :  proximity  to 
a  system  of  transportation  which  would  enable  the  pro- 
ducer to  get  money  or  money's-worth  for  his  produce. 
Suppose  you  have  an  immense  deposit  of  minerals  in  an 
inaccessible  part  of  the  Rocky  Mountains.  Suppose  that 
the  expense  of  constructing  a  railroad  to  a  point  within 
measurable  distance  of  this  deposit  renders  such  construc- 
tion out  of  the  question.  For  all  practical  purposes  in 
the  present,  you  may  as  well  have  a  deposit  of  ore  in 
Saturn  or  Jupiter.  If  you  haul  your  produce  to  a  market 
by  mules,  its  value  will  be  eaten  up  long  before  it  gets  to 
its  destination.  Tons  of  magnificent  corn  have  been 
burned  in  the  Western  States  as  fuel,  simply  because  the 
cost  of  transportation  would  have  exhausted  its  worth  be- 
fore it  could  reach  a  market  and  become  subject-matter 
of  exchange.  This  is  the  sort  of  illusory  value  about 
which  American  patriots  of  the  "  spread-eagle  "  school 
talk  so  largely.  The  United  States  Government,  how- 
ever, took  a  different  view  of  the  problem,  and  this  view 
was  in  principle  very  similar  to  that  which  induced  in- 
dividual States  to  scheme  for  the  development  of  their 
own  internal  resources,  and  to  invite  the  introduction  of 
the  foreign  investor  under  conditions  indicated  in  a  former 
chapter.  It  reasoned  something  as  follows :  Here  is  a 
district  possessing  all  the  conditions  favourable  to  immedi- 
ate settlement  and  ultimate  wealth,  if  only  we  can  supply 
the  vital  need  of  transportation.  To  lock  up  any  thing 
like  from  five  to  twenty  million  dollars  in  the  construe- 


VESTED  INTERESTS.  1 1 9 

tion  of  a  railroad  involves  tremendous  risks.  The  States 
in  which  these  lands  are  situate  have  not  at  present  cash 
adequate  or  available  for  so  great  a  work ;  nor,  if  they  had, 
would  their  people  be  content  to  accept  so  serious  a  hazard. 
Yet  perhaps  we  may  find  some  foreign  investors  with  suf- 
ficient courage  to  accept  these  great  risks,  if  we  give  them 
a  subsidy  in  land  ranging  from  six  to  fifteen  miles  from 
the  track  of  a  projected  railroad  and  continuing  through- 
out its  length.  By  this  method  we  sit  down  quietly  at 
home,  and  permit  the  foreign  investor  to  shoulder  incal- 
culable risks.  Such  a  course  combines,  in  a  remarkable 
degree,  national  patriotism  with  economic  prudence. 

Mr.  Artemus  Ward  has  made  the  world  familiar  with  the 
soundness  of  this  view.  He  says,  in  effect,  that  he  had  no 
overpowering  personal  desire  to  go  to  the  war.  But  a  fine 
sense  of  duty  precluded  him  from  actively  opposing  the 
desire  of  his  wife's  relations  to  go  if  they  so  desired.  Now 
our  government  map  divides  the  land  into  sections  of  640 
acres  each.  If  we  give  to  the  constructing  company  alter- 
nate sections  of  land  within  the  limits  above  referred  to, 
or  larger  limits  if  necessary,  in  consideration  of  their 
building  a  railroad,  the  residuary  sections  which  we  re- 
tain will  be  doubled,  trebled  or  perhaps  quintupled  in 
value.  The  Government  of  the  United  States  will  suffer 
no  pecuniary  loss,  because  the  balance  of  the  land  which 
we  retain  will  (by  reason  of  the  creation  of  a  system  of 
transportation)  be  worth  vastly  more  in  the  market  than 
the  whole  property  was  worth  prior  to  the  gift  of  a  por- 
tion. From  the  point  of  view  of  the  United  States  Gov- 
ernment, "  7t\iov  rj)j.iGv  narrow. 

It  is  a  monstrous  injustice  to  describe  this  interchange  of 
consideration  as  an  ill-considered  and  extravagant  sacrifice 
of  property  on  the  part  of  the  United  States,  It  is  indeed 


120  VESTED  INTERESTS. 

scarcely  credible  that  any  candid  observer  intimately  ac- 
quainted with  the  commercial  history  of  American  States 
can  seriously  contend  that,  on  the  whole,' this  policy  has 
not  indefinitely  accelerated  the  settlement,  development 
and  general  improvement  of  the  several  States  in  which  it 
has  been  liberally  carried  out,  or  that,  in  the  long  run,  the 
grantor  has  not  gotten  substantially  the  best  of  the  bar- 
gain. To  reason  from  the  analogy  of  English  railways 
is  plainly  absurd,  because  in  England  settlement  and 
civilization  preceded  railway  construction,  while  over 
large  tracts  of  the  American  continent  the  exact  con- 
verse has  been  the  case.  In  the  West  and  South  the  con- 
struction of  a  railroad  has  almost  invariably,  in  fact, 
though  subject  to  great  variation  in  point  of  degree, 
been  the  pioneer  of  civilization.  Its  advent  in  a  new  dis- 
trict has  introduced  new  ideas  and  personalities,  new  indi- 
vidual ambitions  and  social  aspirations,  new  phases  and 
standards  of  thought  and  obligation.  It  has  largely  tend- 
ed to  produce  order  out  of  chaos,  to  set  up  a  standard  of 
social  law  and  public  opinion  in  the  roystering  mining 
camp,  and  to  inform  with  energy  and  enterprise  the  sleep- 
iest agricultural  village.  By  its  operation  the  taxable 
property  of  States  has  been  increased  so  as  to  meet  pro- 
gressive educational  and  humanitarian  demands.  The  re- 
sources of  municipal  corporations  have  been  enlarged  so  as 
to  enable  them  to  cope  with  the  requirements  of  public 
order  and  decency.  It  would  indeed  be  difficult  to  por- 
tray the  advantages  which  railroads  have  conferred  upon 
remote  and  scarcely  civilized  districts,  without  recourse  to 
language  bordering  on  the  melodramatic.  That  is  not  the 
purpose  of  the  present  notes. 

It  may  indeed  be  said  that  a  subsidy  of  land  offered  by 
the  Government  to  a  constructing  railroad  corporation  is 


VESTED  INTERESTS.  121 

undistinguishable  in  principle  from  any  other  forms  of  taxa- 
tion. That  proposition  may  be  quite  true,  and  may  be 
freely  granted  to  the  opponents  of  the  system,  for  what- 
ever it  may  be  worth.  But  suppose  that  a  popular  gov- 
ernment sees  nothing  immoral  in  indirect  taxation,  or  in 
protection  of  particular  industries,  or  in  any  other  fiscal  ad- 
justment, which  in  its  opinion  tends  to  the  development 
and  ultimate  independence  of  the  whole  nation,  and  with 
which  the  verdict  of  the  majority  of  the  people  is  in  accord. 
Opinions  will  of  course  differ  as  to  the  correctness  of  the 
principle.  The  irreconcilable  free-trader  will  regard  it  as 
a  frightful  outrage.  On  the  other  hand,  States  pledged 
to  protection  will  consider  it  an  unmixed  benefit.  There 
remains,  after  all,  an  open  question  "which  the  majority 
considers  to  have  been  right  in  principle  and  beneficial  in 
result,  and  which  the  minority  denounces.  You  cannot 
cut  up  a  principle  by  citing  its  abuses.  Neither  the 
majority  nor  the  minority  contends  that  extravagance 
or  jobbery  was  in  any  respect  justifiable. 

The  signs  of  the  times  indicate  fair  recognition  by  the 
people  of  the  United  States  of  the  benefits  which  the 
Country  has  derived  from  the  investment  of  foreign 
capital,  and  of  the  protection  to  which  that  capital  is  en- 
titled. If,  under  that  form  of  popular  government  which 
the  American  nation  has  devised  for  itself,  Congres- 
sional, Legislative  or  Municipal  rings  have  been  permit- 
ted to  make  an  undue  profit  out  of  the  national  resources, 
that  can  afford  no  sufficient  reason  for  ignoring  or  failing 
to  protect  the  legitimate  interests  of -the  foreign  investor. 
It  is  probable  that,  if  the  latter  would  assert  firmly  and 
temperately  the  importance  of  his  rights,  with  due  regard 
to  their  real  merit  and  general  conditions,  he  would 
obtain  as  fair  a  hearing  in  America  as  elsewhere.  In 


122       WESTERN  AND  SOUTHWESTERN  GRAZING  LANDS. 

order  to  do  so  successfully,  it  is  incumbent  on  him  to 
appraise  with  some  approach  to  correctness  his  real 
equities  and  the  vitality  of  the  remedies  appurtenant 
thereto.  If,  for  example,  he  were  desirous  of  protecting 
his  interest  in  State  bonds  as  against  a  State  showing  a 
disposition  to  repudiate,  he  would  probably  have  a  better 
chance  to-day  than  at  any  time  within  the  last  ten  or 
fifteen  years.  Per  contra,  if  he  should  propose  to  induce 
the  Federal  Government  to  pay  his  Confederate  bonds, 
his  prospect  of  success  would  be  in  the  last  degree  vision- 
ary. He  will  possibly  conclude  that,  in  the  long  run, 
"wisdom  is  justified  of  her  children/'  but  that  they  are 
not  always  identifiable  at  first  sight. 

Western  and  Southwestern  Grazing  Lands. 

Advanced  reformers  have  spoken  very  frankly  about 
the  necessity  for  drastic  legislation  in  connection  with 
property  in  the  Far  West  and  Southwest  held  mainly  for 
grazing  purposes  by  individuals  or  corporations  represent- 
ing a  large  amount  of  foreign  capital.  The  truth  would 
seem  to  be  that  the  outcry  is  addressed  not  primarily 
against  the  legitimate  ownership  of  property,  but  against 
an  unfair  interpretation  of  the  rights  and  privileges  inci- 
dent to  such  ownership.  The  occupiers  of  large  ranches 
possessing  grazing  privileges  defined  by  the  custom  of  the 
Country  are  of  course  subject,  like  every  body  else,  to  the 
obligations  of  written  and  unwritten  law  and  custom.  If, 
in  the  exercise  of  a  grasping  spirit,  rights  are  transgressed, 
the  trespasser  has  placed  himself  in  a  false  position.  If 
privileges  have  been  abused  or  rational  customs  set  at 
nought,  the  party  in  fault  must  reasonably  expect  to  be 
more  or  less  coerced  by  such  forms  of  remedy  or  restraint 
as  the  social  conditions  of  the  community  in  which  he 


WESTERN  AND  SOUTHWESTERN  GRAZING  LANDS.    123 

resides  permit  and  justify.  But  the  coercion  or  restraint 
of  a  trespasser  on  legal  rights  or  social  institutions  is  a 
matter  which  stands  on  its  own  merits.  It  throws  no  ap- 
preciable light  on  the  security  or  insecurity  of  property 
owned  and  held  in  accordance  with  law.  Our  observer 
will  probably  conclude  that  law-abiding  men  who  have 
honestly  acquired  interests  in  property  in  the  Far  West 
or  Southwest  can,  if  they  choose  to  adopt  the  proper 
means,  protect  their  interests  there  as  effectually  as  else- 
where. Whatever  views  they  may  be  disposed  to  take 
concerning  property  already  in  possession,  it  may  be  con- 
sidered as  a  foregone  conclusion  that  legislation  restrict- 
ing the  acquisition  of  land  in  large  quantities  by  aliens 
(whether  in  an  individual  or  corporate  capacity)  will 
assuredly  be  carried  out.  A  comprehensive  bill  dealing 
with  this  subject  is,  at  the  time  of  writing,  before  Con- 
gress, and  is,  in  substance,  practically  certain  to  pass  both 
Houses.  It  is  scarcely  necessary  to  say  that  restrictions 
on  the  future  acquisition  of  land  by  aliens  need  excite  no 
apprehension  as  to  the  observance  of  the  foreign  inves- 
tor's rights  in  the  property  of  which  he  has  become  the 
legitimate  owner  prior  to  the  passage  of  the  bill  referred 
to. 


CHAPTER    XVI. 

STATE  CONTROL. 

Is  there  any  truth  in  the  forecast  that,  within  a  measur- 
f  able  limit  of  time  (say  five  or  ten  years),  the  railroads  of 
this  country  will  be  taken  over  by  the  Government,  and 
managed  in  the  future  as  part  of  one  great  national  sys- 
tem composed  of  railroads,  post-office  and  telegraphs  ? 
If  such  a  result  should  be  accomplished,  on  what  con- 
ditions would  the  transfer  be  made  ;  and  in  what  manner 
and  to  what  extent  would  the  interests  of  the  foreign 
investor  be  affected  thereby  ?  There  are  not  wanting 
competent  judges  who  hold  that  the  three  best  known 
forms  of  inter-communication  above  referred  to  form  a 
natural  trio,  and  are  peculiarly  susceptible  of  successful 
and  harmonious  combination.  Great  economies,  say  the 
partisans  of  this  school,  could  be  effected  if  these  three 
branches  could  be  made  to  play  into  each  others'  hands. 
Fewer  buildings  would  be  needed  for  post-offices  and 
telegraph  stations.  A  smaller  staff  would  suffice  for  the 
combined  work,  and  the  services  of  each  member  would 
be  more  adequately  utilized. 

By  the  opposite  school  it  is  contended  that  the  advan- 
.  tages  above  referred  to  are  out-weighed  by  the  defects 
inherent  in  State  control.  The  State,  they  say,  cannot 
and  does  not  make  money  go  as  far  or  produce  as  much 
as  an  individual,  firm  or  company.  When  the  Govern- 
ment takes  to  ship-building,  it  does  not  turn  out  as  good 

124 


STATE   CONTROL.  125 

ships  as  private  builders.  It  spends  more  money  over  its 
work,  and  is  a  longer  time  about  it.  It  is  not  as  judicious 
a  purchaser  of  raw  material.  It  does  not  get  as  good  a 
day's  work  out  of  its  employees.  Government  buildings, 
they  say,  are  unduly  tedious  and  costly  undertakings ; 
and,  in  short,  having  regard  to  existing  results  which 
appeal  to  the  mind  of  the  average  observer,  railroads  are 
not  satisfactory  matter  for  State  management. 

Whichever  of  these  views  be  the  more  reasonable,  it  is 
plain  that  the  immense  capital  invested  in  railroads 
greatly  complicates  the  problem.  The  money  that  has 
been  expended  in  them  is  locked  up  in  a  specially  perma- 
nent sense.*  It  cannot,  like  many  other  forms  of  capital, 
be  withdrawn  and  shifted  at  pleasure  to  more  productive 
or  promising  enterprises.  What  has  been  laid  out  in 
tunnelling  hills,  bridging  rivers,  and  making  rough  places 
smooth  is  virtually  an  irrevocable  outlay.  If  railroads  are 
to  be  acquired  by  the  Government,  somebody  must  pro- 
vide the  purchase  money.  On  the  one  hand,  the  tax- 
payer's money  cannot  be  extravagantly  dispensed,  without 
a  violation  of  duty  on  the  part  of  the  Government.  On 
the  other,  the  proprietor's  rights  cannot  be  confiscated  or 
prejudiced,  without  conflict  with  the  Federal  Constitution. 
Nor  is  a  basis  of  compensation  equitable  to  all  interests 
concefned  such  a  very  simple  matter.  A  basis  of  original 
cost  is  of  course  out  of  the  question.  In  respect  of  an 
economically  constructed  and  successful  railroad,  it  would 
be  unfair  to  the  proprietor.  In  the  case  of  an  extrava- 
gantly constructed  and  unsuccessful  railroad,  it  would  be 
resisted  by  the  tax-payer.  The  capitalized  value  of  a 
going  concern  is  a  calculation  of  some  complexity. 
America  certainly  would  not  pay  for  the  acquisition  of  its 

*  "  Railroad  Transportation,"  Hadley,  pp.  40,  41, 


126  STATE   CONTROL. 

railroads  on  the  scale  adopted  by  the  English  Government 
when  it  assumed  the  telegraphs. 

The  division  of  power  vested  in  the  Federal  Govern- 
ment and  the  several  States  might,  in  readily  conceivable 
cases,  give  rise  to  much  difficulty.  Public  opinion  is 
not  sufficiently  unanimous  on  the  subject — even  from  an 
economical  point  of  view — to  afford  any  reasonable  ex- 
pectation that  so  vast  a  change  will  be  carried  through 
within  the  immediate  range  of  the  investor's  vision. 

There  remains  the  political  aspect  of  the  question,  on 
which  the  public  mind  is  even  more  distinctly  divided 
than  on  its  economical  aspect.  It  is  quite  true  that  in 
many  European  countries  State  control  has  answered  the 
purposes  of  its  projectors  with  a  reasonable  degree  of 
success.  But  in  those  cases  it  has  been  more  or  less  con- 
genial to  the  idiosyncrasies,  habits  and  political  bias  of 
the  people.  As  has  been  ably  pointed  out  in  recent 
treatises  on  the  subject,*  bureaucracy  is  not  uncongenial 
to  the  French  people.  But  it  may  be  doubted  whether, 
on  the  whole,  republican  government  in  France  of  the 
type  recently  developed  could  do  better  for  the  general 
interests  of  the  people  than  the  existing  railroad  com- 
panies. In  Prussia,  under  the  strong  hand  of  Prince 
Bismarck,  the  assertion  of  State  control  must  be  regarded, 
not  strictly  as  an  economical  experiment,  but  as  part  of 
a  political  machinery  tending,  in  his  judgment,  toward 
the  consolidation  of  national  unity  and  the  permanent 
development  of  military  efficiency.  In  Belgium,  until 
recently,  the  Government  was  itself  a  large  proprietor, 
and  took  a  hand  in  active  railroad  competition.  C  In 
England,  if  the  experiment  be  tried  at  all,  it  will 

*  "  Railroads,  their  Origin  and  Problems,"  C.  F.  Adams,  Jr.  "  Railroads 
and  the  Republic,"  J.  F.  Hudson. 


STATE   CONTROL.  I2/ 

probably  be  adopted  as  part  of  the  programme  of  State 
socialism  ;  not  necessarily  because  it  is  economically 
advantageous,  but  because  it  may  be  thought  expedient 
to  adopt  this  course  as  the  price  of  party  support.  In 
America  none  of  these  special  conditions  are  found  to 
exist  in  any  very  cogent  or  convincing  form.  The  con- 
trol of  railroads  would  subserve  no  theory  of  national 
consolidation  or  military  organization,  for  the  excellent 
and  satisfactory  reason  that  the  Country  can  dispense  with 
such  cumbrous  drawbacks  to  the  progress  of  her  internal 
prosperity. 

The  liability  of  the  rate-payer  to  meet  in  the  last  resort 
any  deficit  that  may  arise  from  defective  government  ad- 
ministration appreciably  limits  the  desire  of  the  public  for 
government  intervention  in  private  enterprise  in  all  civ- 
ilized countries.  As  time  goes  on,  the  "  machine " 
becomes  more  distasteful,  and  bureaucracy  is  altogether 
too  intrusive  and  paternal  to  commend  itself  to  the  in- 
stincts of  the  American  people.  The  average  American 
citizen  who  has  entered  himself  in  the  race  for  wealth 
is  self-reliant  in  originating  enterprises,  and  strenuous  in 
conducting  them.  He  is  apt  to  resent  any  interference 
with  the  conduct  of  his  chosen  business  which  is  not  justi- 
fied by  proprietary  interest  therein.  In  short,  he  would 
like  the  Government  which  he  elects  for  his  own  benefit  to 
confine  itself  within  reasonable  limits  to  the  restraint  of 
transgressions  against  law  and  trespasses  on  social  rights, 
and  to  leave  the  enterprising  citizen  to  fight  out  his  own 
battle  with  the  laws  of  supply  and  demand.  He  is  con- 
scious that  to  invest  his  Government  with  a  new  and  un- 
tried sphere  of  action,  in  which  political  influences  may 
be  brought  to  bear  on  private  concerns,  is  to  say  the  least 
of  it  a  dangerous  experiment.  He  has  already  suffered  a 


128  STATE   CONTROL. 

wide  and  disastrous  experience  in  connection  with  political 
jobbery,  and  on  the  whole  would  rather  not  offer  new 
temptations  to  the  energy,  shrewdness  and  capacity  for 
intrigue  which  are  incident  to  politics  when  considered  as 
a  profession. 

Although  therefore  many  competent  thinkers  desire  the 
assumption  of  railroads  by  the  Government,  it  is,  in  the 
writer's  opinion,  improbable  that  such  a  result  will  be  ac- 
complished here,  so  long  as  internal  peace  and  the  quiet 
growth  of  national  prosperity  are  comparatively  free  from 
the  violent  disturbances  incident  to  socialist  feeling.  It 
has  been  noted  above  that,  while  this  pestilent  and  un- 
fortunate impulse  is  certain  to  make  itself  felt  here  as 
elsewhere,  America's  powers  of  resistance  are  at  least  as 
great  as  those  of  any  other  civilized  country.  If  it  be  true 
that  the  "  Granger  "  States  represent  the  dynamite  element 
in  connection  with  American  prosperity,  it  is  impossible 
to  forecast  with  accuracy  what  embarrassments  the  action 
of  a  dissatisfied  and  disappointed  section  of  a  community 
may  eventually  inflict  on  the  law-abiding  creators  of 
American  wealth  and  prosperity.  But  the  signs  of  the 
times  point  to  the  conclusion  that  the  better  instincts  of 
the  whole  people  are  pledged  to  the  maintenance  of  the 
American  Constitution. 

Let  us  suppose  then  that  a  great  deal  of  foreign  money 
is  hereafter  invested  in  American  railroads.  The  chances 
would  seem  to  be  that  no  assumption  of  them  by  the  Gov- 
ernment will  take  place  within  the  horizon  visible  to  the 
average  investor  of  to-day ;  and  that,  if  such  a  result 
should  take  place,  his  rights  will  be  respected  and  com- 
pensated as  fairly  here  as  in  the  older  European  countries. 
—The  outcry  of  the  people  against  railroads,  which  have 
greatly  contributed  to  their  welfare,  will  always  be  a  use- 


STATE   CONTROL.  129 

ful  instrument  in  the  hands  of  the  demagogue ;  but  it 
lacks  the  salient  feature  of  natural  and  easily  recognizable 
equity.  Nobody  denies  that,  if  it  had  been  possible  to 
lay  out  the  railroads  of  any  highly  populous  and  civilized 
country  on  comprehensive  principles  involving  central 
unity  and  organic  symmetry,  friction  and  waste  of  power 
might  have  been  indefinitely  reduced.  But,  as  no  govern- 
ment could  have  stability  or  foresight,  nor  any  generation 
of  men  material  resources,  sufficient  to  justify  so  gigantic 
an  undertaking,  it  was  left  to  private  enterprise  to  accom- 
plish the  task  by  piecemeal  methods,  as  best  it  could. 

Having  regard  to  the  profit  which,  since  the  creation  of 
railroads  on  a  large  scale,  has  rewarded  ordinary  risks  in 
commerce,  trade  and  manufacture,  will  any  thoughtful 
observer  seriously  contend  that  an  average  interest  of 
some  4|-  %  on  invested  capital  is  an  excessive  compensa- 
tion for  the  extraordinary  risks  incurred  in  the  construc- 
tion of  railroads?  Extraordinary  risks,  accepted  for  a  very 
ordinary  compensation  and  enuring  in  a  most  remarkable 
degree  to  the  public  welfare,  give  rise  to  equities  which, 
as  between  railroad  companies  and  the  Government  of  any 
country,  are  entitled  to  most  careful  consideration,  and  in 
the  long  run  are  likely  to  receive  it. 


CHAPTER  XVII. 

GEOGRAPHICAL  DIRECTION   OF   RAILROADS. 

AMONG  other  elementary  enquiries,  our  visitor  may 
probably  ask  whether  the  geographical  direction  of  rail- 
roads has,  from  the  investor's  point  of  view,  any  bearing 
on  their  present  and  prospective  success;  and  if  so  to 
what  extent  and  for  what  reason.  Any  attempt  to  an- 
swer such  a  question  exhaustively  would  of  course  exceed 
the  scope  and  limits  of  the  present  notes.  Nor  has  our 
enquirer  any  intention  of  burthening  his  own  note-book 
with  cumbrous  tables  of  statistics.  To  state  in  detail  the 
figures  which  indicate  the  progress  of  railroad  enterprise 
in  America  would  virtually  amount  to  a  record  of  the 
progress  of  her  internal  trade.  Railroad  history,  in  short, 
affords  something  like  a  rough  standard  of  internal 
business, — recording  in  general  outline  permanent  growth, 
temporary  depressions,  and  temporary  recoveries.  For 
any  exhaustive  discussion  of  this  subject  the  enquirer  will 
properly  refer  to  recognized  text-books.  For  the  present, 
the  practical  question  is  this :  Can  he  derive  any  useful 
suggestions  from  a  rapid  and  superficial  survey  ?  Possibly 
one  or  two  leading  conditions  connected  with  the  situa- 
tion may  be  worth  noting. 

The  tonnage  which  is  annually  moved  from  the  Western 
States  to  the  Eastern  seaboard  is  enormous  in  its  dimen- 
sions. But  the  periods  during  which  the  movement  of 
this  tonnage  continues  are  unequal  in  duration  and  some- 

130 


GEOGRAPHICAL  DIRECTION  OF  RAILROADS.        131 

what  uncertain  in  their  incidents.  Take,  for  example,  a 
very  favourable  stage  in  the  commercial  history  of  the 
great  East-and-West  roads.  Let  us  suppose  that  a 
plentiful  harvest  has  been  gathered  in  by  those  American 
States  which  produce  grain  and  meat  in  extraordinary 
profusion.  Let  us  suppose  further  that  there  is  an  im- 
mense demand  in  Europe  for  imported  food.  It  follows 
that  the  period  which  covers  the  moving  of  the  crops  from 
Western  farms  to  the  Eastern  seaboard  will  tax  to  their 
utmost  capacity  the  resources  of  railroads  running  due 
east  and  west.  To  accomplish  this  service  with  effect, 
a  vast  aggregate  of  rolling  stock  is  an  absolute  necessity. 
No  railroad  which  is  not  in  a  position  to  fill  large  orders 
for  transportation  can  reasonably  expect  to  hold  its  own 
in  a  keen  (and  occasionally  unscrupulous)  competition. 

In  order  to  comply  with  this  condition,  it  is  necessary 
to  maintain  an  amount  of  rolling  stock  roughly  adequate 
to  the  demands  of  maximum  pressure,  and  therefore 
greatly  in  excess  of  the  demand  which  will  exist  during 
the  relatively  inactive  months  of  the  year.  If  the  trans- 
porting company  is  the  absolute  owner  of  its  rolling  stock, 
it  must  take  account  of  interest  on  capital  invested  there- 
in ;  also  of  the  cost  of  repairs  and  maintenance  which  are 
appreciable  items  of  expenditure.  If  the  company  hires 
its  rolling  stock,  it  must  reckon  with  the  amount  paid  for 
car  hire  ;  and  this  too  involves  serious  outlay.  To  very 
long  hauls  during  periods  of  high  pressure  delay  and  de- 
tention are  inevitably  incident ;  and  detention  in  a  state 
of  inactivity  means  suspension  of  earning  power  in  respect 
of  the  cars  so  detained.  Then  again  the  gradual  building 
up  of  manufacturing  industries  in  the  large  cities  of  the 
Middle  and  Western  States  enables  those  cities  to  supply 
a  liberal  share  of  the  necessaries  of  life,  which  were  for- 


132        GEOGRAPHICAL  DIRECTION  OF  RAILROADS. 

merly  transported  to  the  far  West  from  cities  in  the 
neighbourhood  of  the  Eastern  seaboard.  It  results  that 
the  car  which  makes  a  long  haul  from  the  far  West  to 
the  Eastern  seaboard  is  not  only  liable  to  considerable 
delay  and  detention,  but  is  very  apt  (if  the  familiar  bull  be 
permitted)  to  "  load  back  empty." 

Under  these  conditions  it  is  worth  while  to  consider 
roughly  what  are  the  annual  net  earnings  of  a  vast  aggre- 
gate of  rolling  stock.  Granting  that  each  car  earns  a  good 
deal  of  money  during  the  moving  of  the  harvest,  what  is 
its  average  earning  on  the  work  of  the  whole  year  ?  The 
result  is  perhaps  scarcely  as  satisfactory  as  might  at  first 
sight  be  anticipated.  So  vast  is  the  annual  tonnage 
moved  from  the  West  to  the  East,  that — in  spite  of  the 
immense  supply  of  transportation  and  extraordinarily  low 
rates — there  is  amply  sufficient  to  make  a  fair  profit  for  a 
certain  proportion  of  competing  lines.  Those  which  are 
intrinsically  the  strongest  and  best  managed  will  no  doubt 
continue  their  career  of  success.  But,  to  enable  them  to 
accomplish  this  result,  the  weaker  East-and-West  lines 
will  probably  sooner  or  later  suffer  a  severe  discipline.  If 
there  is  barely  enough  to  go  round  and  the  stronger  take 
the  lion's  share,  the  prospect  of  the  weaker  must  always 
be  a  matter  for  careful  consideration, — possibly  even  of 
apprehension, — from  the  investor's  point  of  view.  There 
are  indeed  optimists  who  hold  that  the  traffic  between  the 
remote  East  and  West  will  shortly  grow  up  to  the  exist- 
ing supply  of  transportation  ;  and,  even  at  very  low  rates, 
make  every  East-and-West  road  a  paying  concern.  In 
this  view  the  writer  does  not  concur.  It  seems  not  im- 
probable that,  with  very  modest  rates,  the  business  of  the 
East-and-West  lines  would  suffice  to  pay  a  fairly  liberal 
rate  of  interest  on  all  the  capital  really  and  economically 


GEOGRAPHICAL  DIRECTION  OF  RAILROADS.         133 

invested  in  them.  But,  when  the  amount  of  water  which 
has  been  infused  into  existing  capital  accounts  is  taken 
into  consideration,  it  may  be  doubted  whether  in  the 
future  very  remunerative  interest  will  be  permanently 
paid  on  anything  like  the  whole  of  their  present  capital, 
real  and  fictitious.  The  amount  of  this  water  is,  in  fact, 
so  great  that  the  prudent  investor  can  scarcely  fail  to  re- 
gard it  with  misgiving.  Suppose  to-morrow  a  new  East-and- 
West  "  bee-line  "  were  projected  and  laid  out  with  genuine 
insight  and  superior  judgment ;  that  it  were  built  with- 
out a  dollar  of  waste ;  and  that  all  the  economical  ad- 
vantages derivable  from  the  maximum  purchasing  power 
of  ready  money  were  utilized.  Suppose  further  that  the 
aid  of  all  modern  appliances  conducive  to  cheap  and 
effective  construction  were  conscientiously  and  scientific- 
ally enlisted  in  the  development  of  the  enterprise.  Sup- 
pose that  townships  and  hamlets  throughout  the  proposed 
line  subscribed  with  fair  liberality  in  aid  of  the  undertak- 
ing ;  and  lastly  that  the  new  railroad  when  built  was 
operated  from  the  start  on  a  strictly  commercial  basis ; 
that  its  administration  \\.-&&  from  the  outset  no  speculative 
complications,  no  expensive  emergencies  to  tide  over  and 
no  axes  to  grind,  outside  of  the  immediate  interest  of  the 
road  and  its  stockholders.  Such  a  line,  unembarrassed 
by  water  and  unencumbered  by  artificial  and  unnecessary 
engagements,  would  break  the  heart  of  the  weaker  East- 
and-West  lines,  who  would  surely,  in  any  future  war  of 
rates,  find  themselves  handicapped  out  of  the  race.  The 
lightly  weighted  road  would  make  the  most  of  its  light 
weight,  and  decline  pooling  arrangements.  A  scale  of 
rates,  which  would  provide  a  fair  living  profit  for  a  new 
road  constructed  and  operated  in  the  manner  and  under 
the  conditions  above  indicated,  would  starve  the  junior 


I  34       GEOGRAPHICAL   DIRECTION  OF  RAILROADS. 

securities  of  existing  weak  and  heavily  watered  concerns. 
Whatever  might  be  the  volume  of  existing  business  at 
any  given  time,  the  road  which  could  best  afford  to  un- 
dersell would  have  the  best  of  the  struggle  and  be  the 
most  likely  to  survive. 

Possibilities  of  this  kind  must  properly  be  recognized 
as  factors  in  the  conclusions  of  an  investor,  whenever  he 
contemplates  acquiring  the  securities  of  the  weaker  East- 
and-West  lines.  Whether  such  a  view  be  well  founded 
or  not,  it  must  of  course  be  worth  while  for  the  investor 
to  consider  the  relative  claims  of  lines  which  run  north 
and  south — or  diagonally,  with  some  approximation  to  a 
north  and  south  direction.  Many  cities  of  the  Middle 
States  have,  in  the  last  twenty  years,  grown  with  astonish- 
ing rapidity  into  commercial  and  manufacturing  impor- 
tance. In  exchange  for  raw  material  shipped  to  them 
from  the  Southern  States,  they  are  in  a  position  to  send 
back  a  large  portion  of  the  necessaries  of  life  which  the 
Southern  States  do  not  to-day  produce  for  themselves  in 
reasonable  proportion  to  their  capacity  and  general 
physical  advantages.  While  it  may  be  hoped,  in  the  in- 
terest of  the  latter,  that  greater  attention  will  hereafter 
be  given  to  the  production  of  food,  live  stock,  and  the 
manufacture  of  articles  of  commerce,  it  is  plain  to  the 
observer  that  to-day  the  attention  of  the  South  is  too  ex- 
clusively concentrated  on  certain  special  resources.  Some 
of  these — such  as  coal,  iron  and  other  minerals — the  soil 
produces  in  profusion  and  in  singularly  convenient  juxta- 
position ;  and  others — such  as  cotton,  fruit,  etc. — the 
climate  fosters  with  something  like  trustworthy  assurance 
of  success.  The  home  of  the  cotton  plant  is  in  many 
instances  liberally  supplied  with  the  water  power  to  drive 
the  spindle.  Coal,  iron,  limestone  and  water  are  founc! 


GEOGRAPHICAL  DIRECTION  OF  RAILROADS,       .13$ 

lying  close  together  within  short  distances  of  adequate 
railroad  transportation.  The  great  cities  of  the  Middle 
States  afford  a  convenient  market  for  the  Southern  pro- 
ducer of  these  raw  materials.  Chicago,  Cincinnati,  Louis- 
ville, St.  Louis,  and  many  other  inland  cities  desire  new 
markets  for  their  finished  goods,  and  invite  interchange 
by  all  available  means. 

What  is  likely  to  be  the  effect  of  these  conditions  on 
railroads  from  the  investor's  point  of  view  ?  First  and 
foremost,  "  way  trade  "  is  far  more  remunerative  than 
"  through  business."  Cars,  which  carry  coal  to  a  furnace 
or  cotton  to  a  mill,  carry  also  the  manufactured  product 
to  a  convenient  market,  and  bring  back  the  stores  neces- 
sary for  the  requirements  of  the  manufacturing  com- 
munity. There  is  in  short  ample  material  for  interchange  ; 
and  transporting  companies  load  their  cars  to  some  extent 
in  both  directions  at  rates  higher  than  "through  business" 
between  very  distant  points  will  stand.  Again,  the  trade 
between  the  North  and  South  is  in  its  infancy, — while  a 
good  deal  of  the  East-and-West  trade  has,  so  far  as  the 
profits  of  railroad  companies  are  immediately  concerned, 
passed  into  a  period  of  comparative  decrepitude.  The 
future  of  rates  on  North-and-South  lines  seems  less  liable 
to  disturbance  from  the  incidents  of  severe  competition 
than  those  of  due  East-and-West  lines.  Water  transporta- 
tion, which  limits  to  a  great  extent  the  elasticity  of  East- 
and-West  rates,  operates  with  far  less  severity  on  the 
strictly  inland  lines  which  exchange  the  raw  produce  of 
the  South  for  supplies  furnished  by  the  great  cities  of 
the  Middle  States.  While  the  importation  of  food  to 
Europe  is  likely  to  afford  for  some  years  to  come  a  fairly 
profitable  business,  its  conditions  are  not  very  stable,  nor 
its  remuneration  excessive.  Railroad  enterprises  which 


136        GEOGRAPHICAL  DIRECTION  OF  RAILROADS. 

depend  on  this  condition  to  any  great  extent  are  liable  to 
serious  disappointment. 

So  far  the  coloured  labour  of  the  South,  as  compared 
with  the  white  labour  of  the  "  Granger  "  States  on  the 
great  East-and-West  routes,  has  been  less  demoralized  by- 
popular  agitation  ;  and  perhaps  on  the  whole  the  dis- 
turbance of  business  by  prolonged  and  serious  strikes  is 
less  probable  in  the  future.  In  the  South  the  deference 
paid  by  the  labouring  classes  to  the  seditious  suggestions 
of  the  professional  demagogue  is  less  general  and  less 
earnest  than  in  the  "  Granger  "  States.  The  writer  re- 
members the  time  when  the  "  carpet-bagging  "  demagogue 
who  went  South  from  the  Eastern  States  could  command 
a  ready  ovation  by  the  utterance  of  a  florid  and  prepos- 
terous stump  speech.  On  the  eve  of  an  election  he  was 
wont  to  say  to  a  lazy  and  thriftless  coloured  audience 
that  th.e  North  "  looked  to  them  to  inform  politics  with 
patriotism,  law-courts  with  equity,  and  society  with  re- 
finement "  ;  and  he  would  be  greeted  by  a  hearty  salvo  of 
cheers.  Let  him  make  the  same  effort  to-day,  and  he 
will  find  the  result  deeply  disappointing.  When  he 
reaches  the  climax  of  unblushing  flattery,  a  good-humoured 
"darkey"  in  the  crowd  will  simply  nudge  his  neighbour 
and  say  "  he  guesses  the  boss  must  be  going  to  send 
round  the  hat."  In  short',  even  in  the  South,  the 
national  humour  is  to  some  extent  awakened.  It  is  be- 
ginning to  be  dimly  understood  that  nobody  ever  lavishes 
fulsome  praise  on  the  lowest  of  the  people,  except  when 
he  wants  to  use  them  for  his  own  purposes.  The  percep- 
tion of  this  fact  overthrew  Mr.  Tweed's  celebrated 
Ring.  Many  patriotic  orators  had  urged  with  elo- 
quence and  ability  the  rights  of  the  people.  But  their 
appeals  fell  somewhat  flat.  Mr.  Tweed  and  his  friends 


GEOGRAPHICAL  DIRECTION  OP  RAILROADS.        137 

replied,  in  effect,  that  they  did  not  care  much  about  the 
"  People  "  [whatever  that  phrase  might  mean],  so  long  as 
they  had  behind  them  a  compact  and  highly  organized  ma- 
jority of  irresponsible  persons.  But  presently  somebody 
approached  the  subject  from  a  different  point  of  view. 
Perceiving  the  absurdity  of  the  situation,  he  asked  :  "  Who 
are  these  people  that  impose  on  us  unlimited  taxes, 
expend  them  for  their  own  aggrandizement,  and  rule  us 
with  a  rod  of  iron  ?  Are  they  (as  Mr.  Gilbert's  Duke  in 
"  Patience  "  candidly  enquires)  particularly  intelligent,  or 
remarkably  studious,  or  excruciatingly  witty,  or  unusually 
accomplished,  or  exceptionally  virtuous?"  The  next 
enquirer  asked  :  "  Do  they  contribute  much  to  the  taxes 
which  they  impose  ?  Are  they  particularly  distinguished 
as  legislators,  or  specially  eminent  in  their  scientific  or 
professional  careers  ?"  The  answer  returned  was  in  the 
negative.  It  was  rendered,  not  with  a  howl  of  moral 
indignation,  but  with  a  subdued  sense  of  amusement,  that 
citizens  of  responsibility  and  common-sense  had  allowed 
themselves  to  be  so  absurdly  out-generalled  and  "  got  so 
badly  left."  Underlying  however  this  subdued  sense  of 
amusement  was  a  strenuous  resolve  not  to  "  get  left  "  a 
second  time,  and  the  downfall  of  the  Ring  became  a  fore- 
gone conclusion.  It  remained  for  Mr.  Nast's  pencil  to 
accelerate  its  funeral. 

The  gradual  awakening  of  national  humour  is  the  knell 
of  the  demagogue's  trade.  It  is  a  very  hopeful  sign,  from 
the  point  of  view  of  the  investor  in  Southern  securities, 
that  the  demagogue  cannot  accomplish  as  much  in  the 
South  to-day  as  he  could  some  ten  or  fifteen  years  ago ; 
nor  even  as  much  as  he  can  to-day  accomplish  among  the 
inhabitants  of  the  "  Granger  "  States,  who  are  made  of 
sterner  stuff  than  the  labourers  of  the  South. 


138       GEOGRAPHICAL  DIRECTION  OI<  RAILROADS. 

Again,  with  one  or  two  exceptions,  Railroad  Commissions 
in  the  South  have  been  less  ambitious,  and  have,  on  the 
whole,  exercised  their  powers  with  greater  judgment  and 
moderation  than  elsewhere.  The  Massachusetts  Railroad 
Commission  may  be  regarded  as  standing  apart  by  itself, 
and  as  outside  the  scope  of  the  present  consideration. 
This  is  probably  due  to  the  exceptional  personal  ability 
of  its  representatives,  as  well  as  to  the  wise  limitation  of 
the  powers  granted  them. 

Moreover,  there  would  seem  to  exist  in  the  South  a 
somewhat  higher  and  more  general  appreciation  of  the 
great  benefits  conferred  by  railroads  on  States  recovering 
from  depression  than  is  to  be  found  in  the  Granger 
States ;  and  consequently  railroad  corporations  are  dealt 
with  in  a  fairer  spirit.  Granting  that  to-day  the  aggregate 
mileage  of  railroads  in  the  South  is  somewhat  in  excess  of 
the  demand  of  the  aggregate  tonnage  to  be  moved  and 
travel  to  be  accommodated,  still  there  is  a  larger  margin 
of  undeveloped  internal  resources  than  in  the  Northern 
and  Middle  States.  In  short,  the  trade  of  the  former  is 
on  the  whole  growing  up  to  a  remunerative  point  (so  far 
as  concerns  railroads)  at  a  more  rapid  rate  of  progression 
than  the  trade  of  the  latter.  Amongst  other  indications 
of  prosperity,  the  mineral  trade  of  the  South  shows  a 
steady  and  encouraging  advance. 

To  suppose  that,  because  a  given  district  discloses  at  any 
given  time  unusual  wealth  in  mineral  products,  the  whole 
active  world  of  capital  and  energy  will  immediately  migrate 
to  that  spot  is  of  course  visionary  and  absurd  in  the  last 
degree.  But  it  is  probably  true  that,  in  the  long  run  and 
after  allowing  a  sufficient  interval  of  time  for  transfer  of 
capital  and  adjustment  of  the  market,  the  sphere  of  cheap 
production  will  become  to  a  greater  or  less  extent  th-j 


GEOGRAPHICAL  DIRECTION  OF  RAILROADS.       139 

home  of  a  successful  cognate  industry.  Time  is  needed 
to  bridge  over  a  number  of  gaps  in  the  process  of  transi- 
tion ;  but  sooner  or  later  the  laws  of  supply  and  demand, 
operating  under  the  stress  of  keen  competition,  cause  the 
producer  to  gravitate  towards  the  centres  of  cheapest 
production. 

To  take  a  familiar  instance :  If  it  should  hereafter  be 
found  that  marketable  pig-iron  can  be  manufactured  and 
marketable  coal  supplied  in  Alabama  at  a  substantially 
lower  price  than  in  Northern  States,  it  will  pay  the  manu- 
facturer of  the  Northern  and  Middle  States  to  work  up 
Southern  iron,  rather  than  to  raise  the  raw  material  for 
himself.  What  is  good  for  the  trade  of  a  State  tends 
to  the  prosperity  of  its  railroads.  If,  as  some  observers 
think,  the  rapidly  growing  city  of  Birmingham,  Alabama, 
should  hereafter  become  a  centre  of  a  "  black  country," 
like  its  namesake  in  England,  a  great  impulse  will  have 
been  given  to  the  energy  and  scope  of  Southern  industry ; 
and  the  importation  of  foreign  capital  and  skilled  labour 
will  be  ensured.  The  marketable  products  of  the  country 
will  obtain  a  larger  circulation,  and  progress  in  many  in- 
dustrial departments  will  follow  the  indications  of  success. 
Some  assurance  will  be  offered  to  capital  that  it  is  invested 
in  rising  not  in  sinking  communities  and  near  the  cheap- 
est known  centres  of  production. 

Though  the  coloured  man  has  in  many  respects  disap- 
pointed the  lofty  estimate  formed  of  his  capacity  for  the 
higher  range  of  administrative  functions,  he  is  not  on  the 
whole  a  bad  citizen  or  labourer,  if  properly  directed.  His 
sense  of  humour  is  not  a  myth.  On  the  contrary,  though 
in  a  rudimentary  stage,  it  saves  him  from  many  extrava- 
gances, and  supplies  wholesome  restrictions  on  his  credu- 
lity when  under  treatment  by  the  professional  demagogue. 


140        GEOGRAPHICAL  DIRECTION  Of  RAILROADS. 

Persons  thoroughly  familiar  with  his  habits  of  thought  are 
not  over-much  surprised  at  his  practical  common-sense 
in  many  departments  of  life.  Tell  him  for  instance  that 
according  to  the  modern  "  high-toned  "  view,  you  must 
seek  political  wisdom,  not  from  educated  and  disciplined 
thought,  but  from  the  fresh  impressions  of  the  most  ignor- 
ant people  you  can  find.  He  replies  :  "  If  the  poor  white 
trash  up  in  the  piney  woods  know  more  than  the  bosses 
at  Washington  who  are  studying  all  the  time,  he  guesses 
that  it  is  not  much  good  to  starve  himself  to  send  the  boys 
to  school."  It  would  no  doubt  be  easy  for  a  competent 
debater  to  demonstrate  on  the  spot  that -fresh  impressions, 
being  free  from  the  restraints  imposed  by  knowledge  of 
facts  are  more  trustworthy  guides  to  the  wise  solution 
of  difficult  problems  than  the  conclusions  of  educated 
reasoning.  An  eminent  wit  of  old  is  reputed  to  have  shrunk 
from  reading  a  book  before  reviewing  it,  "  because  it  pre- 
judiced a  fellow  so."  In  short,  the  real  difficulty  of  hand- 
ling a  subject  would  seem  to  arise  from  the  limitations 
imposed  by  knowledge  rather  than  from  those  imposed 
by  ignorance.  This  view  is  somewhat  disappointing  to 
old-fashioned  people  who  had  supposed  that,  by  disburs- 
ing the  tax-payer's  money  for  compulsory  education,  they 
were  converting  capricious  political  aptitudes  into  perma- 
nent and  valuable  habits,  and  eventually  promoting  the 
cause  of  sound  government. 

Though  the  coloured  labourer  of  the  South  is  very  apt 
to  be  both  lazy  and  thriftless,  the  gradual  acquisition  of  a 
little  property  has  tended  to  steady  and  develope  him. 
He  is  physically  strong,  remarkably  enduring  under  the 
strain  of  a  semi-tropical  climate,  very  light-hearted,  and 
almost  entirely  free  from  apprehensions  concerning  the 
future.  His  wants  are  extremely  few  and  simple,  and 


GEOGRAPHICAL  DIRECTION  OP  RAILROADS.       14! 

he  is  willing  to  labour  for  a  rate  of  compensation  which 
his  white  brethren  in  the  East  or  Far  West  would  decline 
or  resent.  If,  on  the  whole,  he  is  a  less  competent 
labourer  than  the  better  class  of  white  men,  it  is  by  no 
means  clear  that  his  labour  is  not  better  worth  having  at 
the  price  for  which  it  can  be  obtained.  The  rate  of 
wages  which  he  demands  is  appreciably  lower,  and  in  the 
case  of  the  farm  labourer  a  good  deal  of  it  is  paid  in  kind. 
On  the  whole,  it  is  reassuring  to  persons  interested  in 
Southern  undertakings  to  note  that,  if  their  enterprises 
are  in  other  respects  sound  and  well  conceived,  their  suc- 
cess will  not  be  imperilled  by  the  mere  colour  of  the 
labour  which  they  employ.  From  the  point  of  view  of 
the  investor  of  new  capital,  a  reasonable  prospect  of 
progressive  increase  in  the  value  of  his  securities  is  a  con- 
sideration of  the  first  importance. 


CHAPTER  XVIII. 

SOME    IMPORTANT    DECISIONS. 

WITHOUT  going  so  far  as  to  say  that  the  American 
Constitution  is  the  investor's  Bible,  it  would  seem  that  a 
few  salient  provisions  contained  in  it  are  of  such  import- 
ance as  to  deserve  some  consideration  on  the  part  of 
an  enquirer  interested  in  American  railroad  securities. 
Where  any  note  has  been  appended  to  cited  cases,  it  is 
not  the  purpose  of  the  writer  to  attempt  an  analysis  or 
summary  of  a  case,  but  merely  to  direct  the  investor's 
attention  to  some  one  point  which  may  seem  to  bear 
directly  on  a  specific  phase  of  his  interest.  For  the  pur- 
poses of  convenient  reference,  short  extracts  are  set 
forth. 

1.  Constitution  of  the  United  States,  Art.  I.,  Sec.  10.— 
No  State  shall    .     .     .    make  any  ex  post  facto  law,  or  law 
impairing  the  obligation  of  contracts. 

2.  Id.,  Art.  V. — No  person  shall     ...     be  deprived 
of  life,  liberty,  or  property,  without  due  process  of  law; 
nor  shall  private  property  be  taken  for  public  use,  without 
just  compensation. 

JURISDICTION. 

3.  Id.,  Art.  III.,  Sec.  2. — The  judicial  power  shall  ex- 
tend to  all  cases,  in  law  and   equity,  arising  under  this 
Constitution,  the  laws  of  the  United  States  and  treaties 
made,  or  which  shall  be  made,  under  their  authority ;  to 

142 


SOME  IMPORTANT  DECISIONS.  143 

all  cases  affecting  ambassadors,  other  public  ministers,  and 
consuls  ;  to  all  cases  of  admiralty  and  maritime  jurisdic- 
tion ;  to  controversies  to  which  the  United  States  shall 
be  a  party  ;  to  controversies  between  two  or  more  States ; 
between  a  State  and  citizens  of  another  State  ;  between 
citizens  of  different  States ;  between  citizens  of  the  same 
State  claiming  lands  under  grants  of  different  States ; 
and  between  a  State,  or  the  citizens  thereof,  and  foreign 
States,  citizens,  or  subjects. 

4.  /</.,  Art.  XI.  [amendment]. — The  judicial  power  of 
the  United  States  shall  not  be  construed  to  extend  to 
any   suit   in    law  or   equity,   commenced    or   prosecuted 
against   one  of  the  United  States  by  citizens  of  another 
State,  or  by  citizens  or  subjects  of  any  foreign  State. 

5.  Art.  XIV.,  Sec.  4.— The  validity  of  the  public  debt 
of  the  United  States,  authorized  by  law,  including  debts 
incurred   for  payment  of  pensions  and  bounties  for  ser- 
vices in  suppressing  insurrection  or  rebellion,  shall  not  be 
questioned.     But  neither  the  United  States  nor  any  State 
shall  assume  or  pay  any  debt  or  obligation  incurred  in  aid  of 
insurrection  or  rebellion  against  the  United  States,  or  any 
claim  for  the  loss  or  emancipation  of  any  slave ;  but  all 
such  debts,  obligations,  and   claims  shall  be  held   illegal 
and  void. 

REMOVAL. 

6.  Sec.  639,  R.  S.  U.  S. — Any  suit  commenced  in  any 
State   court,  wherein  the    amount   in  dispute,  exclusive 
of    costs,    exceeds    the    sum   or  value   of    five  hundred 
dollars,  to  be  made  to  appear  to  the  satisfaction  of  said 
court,  may  be  removed  for  trial,  into  the  circuit  court, 
for  the  district  where  such  suit  is  pending,  next  to  be 
held   after  the  filing  of    the  petition    for   such    removal 


144  SOME  IMPORTANT  DECISIONS. 

hereinafter  mentioned,  in  the  cases  and  in  the  manner 
stated  in  this  section. 

First. — When  the  suit  is  against  an  alien,  or  is  by  a  citi- 
zen of  the  State  wherein  it  is  brought,  and  against  a  citi- 
zen of  another  State,  it  may  be  removed  on  the  petition 
of  such  defendant,  filed  in  said  State  court  at  the  time  of 
entering  his  appearance  in  said  State  court. 

Second. — When  the  suit  is  against  an  alien  and  a  citizen 
of  the  State  wherein  it  is  brought,  or  is  by  a  citizen  of 
such  State  against  a  citizen  of  the  same,  and  a  citi- 
zen of  another  State,  it  may  be  so  removed,  as  against 
said  alien  or  citizen  of  another  State,  upon  the  petition  of 
such  defendant  filed  at  any  time  before  the  trial  or  final 
hearing  of  the  cause,  if,  so  far  as  it  relates  to  him,  it  is 
brought  for  the  purpose  of  restraining  or  enjoining  him, 
or  is  a  suit  in  which  there  can  be  a  final  determination  of 
the  controversy,  so  far  as  concerns  him,  without  the  pres- 
ence of  the  other  defendants  as  parties  in  the  cause.  But 
such  removal  shall  not  take  away  or  prejudice  the  right 
of  the  plaintiff  to  proceed  at  the  same  time  with  the  suit 
in  the  State  court  as  against  the  other  defendants. 

Third. — When  a  suit  is  between  a  citizen  of  the  State  in 
which  it  is  brought  and  a  citizen  of  another  State,  it  may 
be  so  removed  on  the  petition  of  the  latter,  whether  he 
be  plaintiff  or  defendant,  filed  at  any  time  before  the  trial 
or  final  hearing  of  the  suit,  if  before  or  at  the  time  of  filing 
said  petition  he  makes  and  files,  in  said  State  court,  an 
affidavit,  stating  that  he  has  reason  to  believe,  and  does 
believe,  that,  from  prejudice  or  local  influence,  he  will  not 
be  able  to  obtain  justice  in  such  State  court. 

Ayres  v.  Watson,  113  U.  S.  Rep.;  Gregory,  ?>.  Hartly, 
113  U.  S.  Rep. 

Stone  v,  South  Carolina,  117  U.  S,  Rep.,  430.     A  State 


SOME  IMPORTANT  DECISIONS.  145 

court  is  not  bound  to  surrender  its  jurisdiction  of  a  suit 
on  petition  for  removal,  until  a  case  has  been  made  which, 
on  its  face,  shows  that  the  petitioner  has  a  right  to  the 
transfer ;  and  if  it  decides  against  the  removal  and  pro- 
ceeds with  the  cause,  its  ruling  is  reviewable  by  the 
ultimate  court  of  appeal  after  final  judgment. 

Of  course,  the  foreign  investor  is  interested  to  a  greater 
or  less  extent  in  a  vast  range  of  statute  and  case  law. 
But  the  utmost  that  is  possible  within  the  scope  of  the 
present  notes  is  to  briefly  direct  or  recall  his  attention  to 
certain  very  limited  aspects  of  his  interest — present  and 
future — in  connection  with  which  it  may  be  specially 
sensitive  to  hostile  action  on  the  one  hand,  or  admit  of 
effectual  defence  on  the  other.  At  once  the  most  fa- 
miliar and  formidable  complications  would  seem  to  arise 
from  the  conflict  between  Federal  and  State  powers — 
e.  g.,  cases  in  which  a  State  desires  to  impair  the  obliga- 
tion of  contracts,  or  to  injuriously  affect  property,  by  the 
enactment  of  laws  of  doubtful  validity  within  the  mean- 
ing of  the  Federal  Constitution.  A  few  notes  and  refer- 
ences roughly  indicative  of  familiar  situations  are  sub- 
joined. 

IMPAIRMENT   OF   CONTRACTS. 

7.  Dartmouth   College  v.  Woodward,  4   Wheat.,  498. 
The  charters  of  private  corporations  are   contracts  pro- 
tected from  invasion  by  the  Constitution  of  the  United 
States.     "  The  objects  for  which  a  corporation  is  created 
are  universally  such  as  the  government  wishes  to  promote. 
They  are  deemed  beneficial  to  the  country,  and  this  bene- 
fit constitutes  the  consideration,  and  in  most  cases  the  sole 
consideration,  for  the  grant." 

8.  The  Binghamton  Bridge,  3  Wai.,  74, — "The  Legisla- 


146  SOME  IMPORTANl^  DECISIONS. 

ture,  therefore,  says  to  public-spirited  citizens :  '  If  you 
will  embark,  with  your  time,  money,  and  skill  in  an  enter- 
prise which  will  accommodate  the  public  necessities,  we 
will  grant  to  you,  for  a  limited  period,  or  in  perpetuity, 
privileges  that  will  justify  the  expenditure  of  your  money, 
and  the  employment  of  your  time  and  skill.'  Such  a  grant 
is  a  contract,  with  mutual  considerations,  and  justice  and 
good  policy  alike  require  that  the  protection  of  the  law 
should  be  assured  to  jt." 

9.  Fletcher  v.  Peck,  6  Cr.,  87. — A  contract  is  a  compact 
between  two  or  more  parties.     The  Constitution  of  the 
United  States  embraces  all  contracts,  executed  or  execu- 
tory, whether  between  individuals  or  between  a  State  and 
individuals. 

10.  Greene.  Biddle,  8  Wheat.,  105. — The  practice  of  the 
courts  of  the  United  States — that  is,  the  remedies  of  the 
parties  therein,  is  subject  to  no  other  power  than  that  of 
Congress. 

11.  Wolf  v.  New  Orleans,  103  U.  S.,  358-365.  "  Legisla- 
tion producing  this  latter  result  (impairment  of  the  obliga- 
tion of  a  contract  by  abrogating  or  lessening  the  means  of 
its  enforcement),  not  indirectly  as  a  consequence  of  legiti- 
mate  measures   taken,   as   will   sometimes    happen,    but 
directly  by  operating  upon   those   means,  is  prohibited 
by  the    Constitution,   and   must   be   disregarded,  treated 
as  if  never  enacted,  by  all  courts  recognizing  the  Con- 
stitution as  the  paramount  law  of  the  land." 

12.  Id.,    367. —  "  The  prohibition  of   the   Constitution 
against  the  passage  of  laws  impairing  the  obligation  of 
contracts  applies  to  the  contract  of  the  State  and  to  those 
of  its  agents  acting  under  its  authority,  as  well  as  to  con- 
tracts between  individuals.     And  that  obligation  is  im- 
paired in  the  sense  of  the  Constitution  when  the  means 


SOME   IMPORTANT  DECISIONS.  147 

by  which  a  contract  at  the  time  of  its  execution  could  be 
enforced — that  is,  by  which  the  parties  could  be  obliged  to 
perform  it,  are  rendered  less  efficacious  by  legislation 
operating  upon  those  means." 

13.  The  Bridge  Proprietors^,  the  Hoboken  Co.,  I  Wai., 
1 16. — Where  a  statute  of  a  State  creates  a  contract,  and  a 
subsequent  statute  is  alleged  to  impair  the  obligation  of 
that  contract,  and  the  highest  court  of  law  or  equity  in 
the    State  construes  the  .first  statute  in  such  a  manner 
as  that  the  second  statute  does  not  impair  it,  whereby  the 
second  statute  remains  valid  under  the  Constitution  of  the 
United  States,  the  validity  of  the  second  statute  is  "  drawn 
in  question,"  and  the  decision  is  in  "  favour  "  of  its  valid 
ity,  within  the  meaning  of  the  25th  section  of  the  Judici- 
ary Act  of  1789.     This  court  may  accordingly,  under  the 
said   section,  re-examine    and    reverse   the   judgment   or 
decree  of  the  State  court  given  as  before  said.     The  case 
distinguished  from  the  Commercial  Bank  v.  Buckingham's 
Executors  [5  Howard,  317],  Grier,  J.,  dissenting. 

14.  Id.,  2. — A  party  relying  on  this  court  for  re-examina- 
tion and  reversal  of  the  decree  or  judgment  of  the  high- 
est State  court,  under  the  25th  section  of  the  Judiciary 
Act  of  1789,  need  not  set  forth  specially  the  clause  of  the 
Constitution  of  the  United  States  on  which  he  relies.     If 
the  pleadings  make  a  case  which  necessarily  comes  within 
the  provisions  of  the  Constitution,  it  is  enough. 

15.  Osborn  v.  Bank  of  the  United  States,  9  Wheat.,  738- 
903. — An  injunction  was  sustained  against  the  treasurer 
and  auditor  of  Ohio  to  prevent  the  seizure  of  moneys  be- 
longing to  the  bank  in  payment  of  taxes  levied  under  an 
unconstitutional  law  of  the  State.     Marshall,  Ch.  J.,  de- 
livering the   opinion   said  :  "  If   the   person   who    is   the 
real  principal,  the  person  who  is  the  true  source  of  the 


148  SOME  IMPORTANT  DECISIONS. 

mischief,  by  whose  power  and  for  whose  advantage  it  is 
done,  be  himself  above  the  law,  it  would  be  subversive  of 
the  best  established  principles  to  say  that  the  laws  could 
not  afford  the  same  remedies  against  the  agent  employed 
in  doing  the  wrong  which  they  would  afford  against  him 
could  his  principal  be  joined  in  the  suit." 

16.  United  States  v.  Lee,  106  U.  S.,  196  ;  cited  and 
affirmed  in  Davis v.  Gray,  i6Wal.,  203-220. — "Where  the 
State  is  concerned,  the  State  should  be  made  a  party,  if 
it  could  be  done.  That  it  cannot  be  done  is  a  sufficient 
reason  for  the  omission  to  do  it,  and  the  court  may  pro- 
ceed against  the  officers  of  the  State  in  all  respects  as  if 
the  State  were  a  party  to  the  record."  In  deciding  who  are 
the  parties  to  the  suit,  the  court  will  not  look  beyond  the 
record.  Making  a  State  officer  a  party  does  not  make  the 
State  a  party,  although  her  law  may  have  prompted  his 
action,  and  the  State  may  stand  behind  him  as  the  real 
party  in  interest. 

In  Davis  v.  Gray,  the  Governor  and  the  Commissioner 
of  the  General  Land  Office  of  Texas  were  "  enjoined 
from  issuing,  or  causing  or  permitting  to  issue,"  patents 
of  certain  lands,  the  sale  of  which  her  Constitution  had 
authorized,  upon  the  supposition  that  the  title  of  a  cor- 
poration to  them  had  been  lost.  In  considering  the  right 
of  a  private  party  to  maintain  suit  against  those  officers, 
inasmuch  as  a  suit  could  not  be  brought  directly  against 
the  State,  the  court  reasserted  the  doctrine  announced  in 
Osborn  v.  Bank  of  the  United  States. 

The  objection  suggested  was  also  considered  and  dis- 
posed of  in  the  Board  of  Liquidation  v.  McComb,  a 
case  against  these  very  officers,  decided  in  1865.  There 
the  board  undertook  to  liquidate  a  debt  contracted 
in  reconstructing  and  keeping  in  repair  levees  on  the 


SOME  IMPORTANT  DECISIONS.  149 

Mississippi  River,  with  consolidated  bonds  issued  under 
the  act  of  1874,  pursuant  to  the  authority  of  a  sub- 
sequent statute  of  the  Legislature.  A  citizen  of  Dela- 
ware holding  some  of  the  consolidated  bonds  contended 
that  the  levee  debt  was  not  one  of  the  debts  to  fund 
which  these  bonds  had  been  issued,  and  that  the  use  of 
them  for  that  purpose  would  defeat  one  of  the  benefits  of 
the  funding  scheme.  He  therefore  applied  to  the  Circuit 
Court  of  the  United  States  for  an  injunction  to  restrain 
the  board  from  funding  the  levee  debt  with  these  bonds, 
and  obtained  it.  The  injunction  was  made  perpetual  by 
a  final  decree,  which  was  affirmed  here.  "  In  our  judg- 
ment, therefore,"  we  said,  speaking  by  Mr.  Justice  Bradley, 
"  the  court  below  was  right  in  granting  the  injunction  as 
to  the  consolidated  bonds,  if  the  defendants,  occupying 
the  official  position  they  do,  are  amenable  to  such  a  pro- 
cess. On  this  branch  of  the  subject,  the  numerous  and 
well-considered  cases  heretofore  decided  by  this  court 
leave  little  to  be  said.  The  objections  to  proceeding 
against  State  officers  by  mandamus  or  injunction  are,  first, 
that  it  is  in  effect  proceeding  against  the  State  itself,  and, 
secondly,  that  it  interferes  with  the  official  discretion 
vested  in  the  officers.  .  It  is  conceded  that  neither  of  these 
things  can  be  done.  A  State,  without  its  consent,  cannot 
be  sued  by  an  individual ;  and  a  court  cannot  substitute 
its  own  discretion  for  that  of  executive  officers  in  matters 
belonging  to  the  proper  jurisdiction  of  the  latter.  But  it 
has  been  well  settled  that  when  a  plain  official  duty,  requiring 
no  exercise  of  discretion,  is  to  be  performed,  and  perform- 
ance is  refused,  any  person  who  will  sustain  personal 
injury  by  such  refusal,  may  have  a  mandamus  to  compel 
its  performance;  and  when  such  duty  is  threatened  to  be 
violated  by  some  positive  official  act,  any  person  who  will 


150  SOME  IMPORTANT  DECISIONS, 

sustain  personal  injury  thereby,  for  which  adequate  com- 
pensation cannot  be  had  at  law,  may  have  an  injunction 
to  prevent  it.  In  such  cases  the  writs  of  mandamus  and 
injunction  are  somewhat  correlative  to  each  other.  In 
either  case,  if  the  officer  plead  the  authority  of  an 
unconstitutional  law  for  the  non-performance  or  violation 
of  his  duty,  it  will  not  prevent  the  issuing  of  the  writ. 
An  unconstitutional  law  will  be  treated  by  the  courts  as 
null  and  void." — 92  U.  S.,  531,  541. 

For  another  view,  see  La.  v.  Jumel.,  17  Otto,  711,  and 
dissenting  opinion  of  J.  J.  Field  and  Harlan.  There  may 
be  a  statutable  obligation  on  a  public  officer  to  fulfil  a 
public  duty  of  such  a  kind  as  to  be  enforcible  in  Federal 
courts. 

17.  U.  S.  v.  Diekelman,  U.  S.,  520;  N.  H.  v.  La.;  N.  Y.  v. 
La.,  U.  S.,  77.     A  State  cannot  allow  the  use  of  its  name 
in  a  suit  against  another  State  for  the  benefit  of  one  of 
its  citizens,  or  become  a   mere    collecting   agent    of  his 
bonds  or  coupons. 

1 8.  The  law  which  governs  the  police  power  of  States 
is  important,  because  the  elasticity  of  these  powers  would 
seem  to  be  extraordinarily  great.     If  they  are  so  inter- 
preted as  merely  to  sustain  the  inherent  power  of  States 
to  regulate  railroad  business  within  the  ordinary  meaning 
of  the  term  "  regulation,"  the  investor  in  the  securities  of 
Granger  States  has  no   special   cause   for  apprehension. 
But,  if  they  are  so  interpreted  as  to  amount,  in  effect,  to 
indirect  confiscation   of  the   increment   of  value  and  of 
vested  interests  in  various  other  forms,  they  are  plainly 
calculated  to  alarm  and  alienate  foreign  capital.     It  may 
be  worthy  of  note  that  the  mind  of  the  highest  tribunal 
in  this  country  would  appear  to  be  not  finally  made  up  on 
this  very  important  subject.     While  the  general  tenour  of 


SOME  IMPORTANT  DECISIONS.  I$I 

the  Granger  cases  favours  an  interpretation  of  police  regu- 
lation strongly  adverse  to  the  interests  of  an  intending 
investor,  the  dissenting  opinions  of  very  strong  and  able 
Judges  tend  in  the  opposite  direction,  and  incline  to  the 
protection  of  contracts  under  the  provisions  of  the  Fed- 
eral Constitution.  The  cases  cited  below  will  repay  the 
casual  investor  for  the  trouble  of  considering  them  atten- 
tively. Munn  vs.  Illinois,  4  Otto,  113  ;  C.,  B.,  &  Q.  R.  R. 
vs.  Iowa,  4  Otto,  155  ;  Peik  vs.  C.  &  N.  W.  R.  R.;  Win- 
ona  and  St.  Peters  vs.  Blake,  4  Otto,  164. 

RESERVED    POWER    OF    STATES   TO    REPEAL   OR    MODIFY 
CHARTERS. 

19.  When  a  State  reserves  to  itself  under  the  provisions 
of  an  old  existing  constitution  the  right  to  repeal  or  mod- 
ify at  will  the  charters  which  it  grants, — and  by  inference 
the  contracts  which  it  makes, — a  railroad  corporation  ac- 
cepts a  charter  subject  to  the  risks  and  losses  incident  to 
the  future  exercise  by  the  State  of  such  reserved  power. 
See"  Tilley  77.  Sav.,  Florida,  and  Western  R.  R.  Co.,  5  Fed. 
Rep.,  641.  Woods,  C.  J.,  speaks  as  follows  :  "  It  has  been 
the  policy  of  Georgia,  at  least  since  January  1st,  1863,  to 
grant  no  charter  which  should  not  be  subject  to  revision 
or  repeal  by  the  General  Assembly.  Whether  wise  or  un- 
wise, this  policy  has  been  embodied  in  the  constitution  of 
1877.  It  was  clearly  the  purpose  of  the  people,  in  the 
adoption  of  that  revision  of  the  organic  law,  to  keep  the 
charges  of  the  railroad  companies  of  the  State  within  legis- 
lative control.  They  were  not  satisfied  with  the  rules  of 
the  common  law  on  this  subject.  The  act  of  October  14, 
1879,  is  kut  tne  practical  expression  of  the  will  of  the 
people  of  the  State  as  embodied  in  their  organic  law.  It 


152  SO  ME  IMPORTANT  DECISIONS. 

is  the  exercise  of  a  right  which  they  have  been  careful  to 
reserve,  and  subject  to  which  the  defendant  company 
were  allowed  to  exist  as  a  corporation." 

The  case  is  important,  because  it  indicates  the  necessity 
of  strictly  investigating  the  reserved  powers  of  States  to 
repeal  charters  or  modify  a  contract  by  ex  post  facto  legis- 
lation, after  the  valuable  consideration  of  building  a  rail- 
road has  been  paid  by  a  corporation.  Acquiescence  in  the 
consolidation  of  chartered  railroads  and  in  the  issue  of  their 
securities  does  not  affect  the  right  of  a  State  to  exercise 
reserved  power.  The  investor  in  railroads  must  depend  on 
the  virtue  of  the  people  rather  than  on  enforcible  rights 
of  contract,  and  this  is,  of  course,  a  matter  of  taste  and 
judgment. 

20.  As  regards  the  right  of  a  State  to  decline  to  permit 
itself  to  be  sued,  and  the  point  to  which  and  limitations 
under  which  this  protection  is  extended  to  public  [State] 
officers,  acting  in  conformity  with  their  official  instruc- 
tions, see  Hagood  v.  Southern,   117  U.  S.  Rep.;   R.  R. 
Company  v.  Alabama,    101    U.   S.   Rep.;  Poindexter  v. 
Greenhow,  1 14  U.  S.  Rep.,  and  cases  connected  therewith, 
known  as  the  Virginia  Coupon  Cases. 

21.  In  View  of  the  great  injury  to  railway  business  aris- 
ing from  strikes,   and  the  intimidation  and    obstruction 
incident  thereto,  a  case  recently  decided  by  the  New  York 
Court  of  Appeals,    the    highest  authority  in  that  State 
[reported  in  the  New  York  Railway  Age,  July  8,  1886], 
may  be  worth  perusal. 

The  action  was  that  of  Meyer  Geismer,  respondent,  v. 
Lake  Shore  &  Michigan  Southern  Railroad  Company,  ap- 
pellant, and  was  brought  by  the  plaintiff  to  recover  dam- 
ages caused  by  delay  of  many  days  on  account  of  the 
great  strike  at  Cleveland  and  along  the  line  in  1877.  The 


SOME  IMPORTANT  DECISIONS.  153 

plaintiff  recovered  a  large  verdict  at  the  circuit,  which 
was  affirmed  at  the  general  term.  The  Court  of  Appeals 
has  just  reversed  these  decisions,  and  holds  that  a  com- 
mon carrier  is  not  liable  for  any  delays  occasioned  by  a  re- 
sisting force  or  mob  over  which  it  has  no  control. 

The  Court,  amongst  other  things,  spoke  as  follows: 
"  A  railroad  carrier  stands  upon  the  same  footing  as  other 
carriers,  and  may  excuse  delay  in  the  delivery  of  goods  by 
accident  or  misfortune,  not  inevitable  or  produced  by  the 
act  of  God.  All  that  can  be  required  of  it  in  any  emer- 
gency is  that  it  shall  exercise  due  care  and  diligence  to 
guard  against  delay,  and  to  forward  the  goods  to  their 
destination,  and  so  it  has  been  uniformly  decided. 

"  In  the  absence  of  special  contract,  there  is  no  absolute 
duty  resting  upon  a  railroad  carrier  to  deliver  the  goods 
entrusted  to  it  within  what,  under  ordinary  circumstances, 
would  be  a  reasonable  time.  Not  only  storms  and  floods 
and  other  natural  causes  may  excuse  delay,  but  the  con- 
duct of  men  may  also  do  so.  An  incendiary  may  burn 
down  a  bridge,  or  a  mob  may  tear  up  the  tracks,  or  disable 
the  rolling-stock,  or  interpose  irresistible  force  or  over- 
powering intimidation,  and  the  only  duty  resting  upon 
the  carrier,  not  otherwise  in  fault,  is  to  use  reasonable 
efforts  and  due  diligence  to  overcome  the  obstacles  thus 
interposed,  and  to  forward  the  goods  to  their  destination. 

"  While  the  Court  below  conceded  this  to  be  the  general 
rule,  it  did  not  give  the  defendant  the  benefit  of  it,  because 
it  held  that  the  men  engaged  in  the  violent  and  riotous 
resistance  to  the  defendant  were  its  employees,  for  whose 
conduct  it  was  responsible,  and  in  that  holding  was  the 
fundamental  error  committed  by  it.  It  is  true  that  these 
men  had  been  in  the  employment  of  the  defendant ;  but 
they  left  and  abandoned  that  employment.  They  ceased 


154  SOME  IMPORTANT  DECISIONS. 

to  be  in  its  service,  or  in  any  sense  its  agents,  or  for  whose 
conduct  it  was  responsible.  They  not  only  refused  to 
obey  its  orders,  or  to  render  it  any  service,  but  they  wil- 
fully arrayed  themselves  in  positive  hostility  against  it, 
and  intimidated  and  defeated  the  efforts  of  its  employees, 
who  were  willing  to  serve  it.  They  became  a  mob  of 
vicious  law-breakers,  to  be  dealt  with  by  the  government, 
whose  duty  it  was,  by  the  use  of  adequate  force,  to  restore 
order,  enforce  proper  respect  for  private  property  and 
private  rights  and  obedience  to  law.  If  they  had  burned 
down  bridges,  torn  up  tracks,  or  gone  into  passenger-cars 
and  assaulted  passengers,  upon  what  principle  could  it  be 
held  that  as  to  such  acts  they  were  the  employees  of  the 
defendant  for  whom  it  was  responsible?  If  they  had  sued 
the  defendant  for  wages  for  the  eleven  days  when  they 
were  thus  engaged  in  blocking  its  business,  no  one  will 
claim  that  they  could  have  recovered."  * 

As  the  law  relating  to  strikes  and  the  obligations  and 
liabilities  devolving  on  railroad  companies  in  connection 
therewith  can  scarcely  be  considered  to  be  finally  settled, 
this  case  is  reassuring  to  the  investor  in  railroad  securities. 

22.  Some  observations  have  been  made  above  [90-109] 
as  to  the  importance  from  the  investor's  point  of  view  of 
the  powers  conferred  on  railroad  commissions  as  factors  in 
the  general  railroad  situation  of  to-day.  The  enquirer 
may  not  unreasonably  say  that,  in  order  to  form  any  ade- 
quate judgment  on  the  subject,  it  would  be  convenient  to 
have  before  him  a  typical  example  of  an  act  conferring 
such  powers,  together  with  the  remedies,  penalties  and 
general  provisions  included  therein.  In  order  to  meet 
this  requirement,  the  Act  of  Georgia  constituting  its 
Railroad  Commission  is  subjoined  in  the  form  of  an  ap- 

*  Railway  Age,  July  8,  1886. 


SOME  IMPORTANT  DECISIONS.  155 

pendix.     Measured  by  the  average  standard  of  railroad 
legislation,  this  may  be  considered  a  stringent  act. 

The  law  of  Massachusetts  is  considered  by  many  com- 
petent critics  to  occupy  the  highest  place  as  a  precedent 
or  model  for  railroad  legislation  in  America,  and  is  com 
paratively  well  known  to  foreign  investors.  A  short  ex- 
tract showing  powers  reserved  to  the  Commonwealth  is 
subjoined. 


CHAPTER  XIX. 

SOME   NOTES   ON   THE    INTER-STATE   COMMERCE  ACT. 

SINCE  the  above  pages  were  written,  a  bill  addressed 
to  the  regulation  of  Inter-state  commerce  has  passed  into 
law.  That  legislation  in  this  direction  would  be  carried 
through  both  Houses  at  no  very  remote  period  was  confi- 
dently anticipated  by  competent  observers  of  the  railroad 
situation.  No  serious  doubt  existed  as  to  the  power  of 
Congress  to  institute  an  appropriate  tribunal  for  the  regu- 
lation contemplated  by  the  Constitution.  But  there 
existed  a  conflict  of  opinion  as  to  the  legitimate  scope  of 
the  powers  which  could  lawfully  and  wisely  be  conferred 
on  the  Commission  of  the  future.  It  is  too  early  in  the 
history  of  the  recent  Act  to  predict,  with  any  semblance 
of  confidence,  the  effect  which  it  will  produce  on  the  com- 
merce and  trade  of  the  country,  because  it  is  necessary  to 
take  into  account  elements  which  are  at  present  unknown 
quantities.  Forecasts  based  on  the  operation  of  the  laws 
of  supply  and  demand  are  liable  to  serious  disappoint- 
ment. This  branch  of  the  subject  involves  many  complex 
and  obscure  conditions,  and  is,  at  the  best,  very  imper- 
fectly understood.  As  has  been  noted  above,  these  laws 
do  not  readily  lend  themselves  to  arbitrary  control.  Their 
beneficent  operation  may  easily  be  retarded  by  rash  legis- 
lation, but  can  very  rarely  be  materially  accelerated  by 
heroic  measures.  Again,  the  cordiality  or  dislike,  with 
which  the  new  legislation  may  be  accepted  by  the  railroad 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      157 

companies  on  the  one  hand  and  by  the  outside  public  on 
the  other,  are  also  unknown  quantities.  Sociology  is  not 
sufficiently  advanced  to  enable  the  observer  to  measure 
and  define  the  undercurrents  of  motive  and  feeling  which 
may,  to  an  appreciable  extent,  affect  the  calculation. 
Although  however  elaborate  prediction  as  to  net  results 
may  be  dismissed  as  futile,  the  Act  contains  certain  known 
elements  which  may  be  regarded  as  tending  to  produce 
definite  effects,  and  these  are  the  legitimate  subjects  of 
criticism.  If  this  be  so,  it  may  not  be  wholly  uninterest- 
ing to  note  a  few  points  which  occur  in  connection  with 
the  history  and  tenor  of  the  Act,  provided  such  notes  be 
suggestive — not  didactic — in  character. 

Having  regard  to  the  immense  complexity  of  the  inter- 
ests involved,  it  is  difficult  to  resist  the  conclusion  that 
the  legislation  embodied  in  the  recent  Act  has  been  some- 
what over-hasty.  Investigation  of  the  more  searching 
kind  has  followed,  instead  of  preceding,  enactment.  The 
amount  of  light  which  experts  have  thrown  upon  the  bill 
since  its  passage  became  a  foregone  conclusion  has 
greatly  exceeded  that  which  was  shed  upon  it  in  its  earlier 
stages.  To  use  a  metaphor,  the  patient's  disease  was 
complex  in  character,  and  its  symptoms  were  obscure  and 
misleading.  But  his  condition  was  not  immediately 
critical,  and  his  life  and  health  were  matters  of  immense 
public  importance.  As  his  disease  was  confessedly  not 
understood,  would  it  not  have  been  wiser  to  prolong  the 
process  of  diagnosis  than  to  administer  a  kill-or-cure 
remedy,  and  trust  to  a  post-mortem  examination  for  the 
explanation  of  the  malady  ?  In  the  writer's  opinion,  the 
case  called  for  a  special  commission,  in  order  that  its 
legal,  commercial  and  social  conditions  might  be  ade- 
quately investigated,  and  that  the  direction  and  scope  of 


158     NOTES  ON  THE  INTER-STATE  COMMERCE  ACT. 

so  vastly  far-reaching  an  enactment  might  be  wisely  de- 
termined. 

As  the  bill  has  passed  into  law,  it  is  obvious  that  its 
antecedents  are  now  of  little  practical  importance,  from 
the  investor's  point  of  view.  To  examine  in  detail  the 
provisions  of  the  Act  would  greatly  exceed  the  limits  of 
space  which  can  properly  be  allotted  to  the  present  notes. 
This  task  has  been  ably  carried  out  in  Mr.  Dos  Passos' 
excellent  analysis  of  the  Act,*  which  greatly  facilitates  the 
understanding  of  a  somewhat  obscure  piece  of  legisla- 
tion, and  to  the  author  of  which  the  present  writer 
acknowledges  his  obligations. 

The  legal  difficulties  which  beset  the  situation  are  ably  set 
forth  by  the  author  referred  to,  and  that  aspect  of  the  ques- 
tion may  be  considered  as  practically  exhausted.  From  the 
foreign  investor's  point  of  view,  some  of  these  difficulties 
are  of  deep  and  immediate  interest,  while  others,  so  far  as 
the  protection  of  his  money  is  concerned,  may  be  re- 
garded as  "  soaring  into  the  region  of  speculation."  The 
only  criticism  which  would  seem  to  call  for  his  attention 
has  reference  to  the  probability  of  situations  favourable  or 
adverse  to  his  permanent  interest  being  generated  by  the 
Act,  and  either  inspiring  him  with  courage  or  depressing 
him  by  apprehension.  Even  this  very  limited  view  of  the 
subject  postulates  reference  to  the  leading  provisions  of 
the  Act,  to  their  soundness  in  principle,  and  the  chances 
of  their  beneficent  operation.  Accepting  then  Mr.  Dos 
Passes'  work  as  a  text-book  of  authority,  it  is  proposed 
to  jot  down  the  writer's  impressions  on  those  particular 
points  to  which  the  foreign  investor  may  do  well  to  de- 
vote passing  attention.  These  may  be  briefly  classified 

*  "  The  Inter-State  Commerce  Act,"  by  John  R.  Dos  Passos.     G.  P.  Put- 
nam's Sons,  New  York,  1887. 


ttOTES  Orf  THE  INTER-STATE   COMMERCE  ACT,      I  59 

under  the  following  heads,  viz.  I.  Definition  of  regula- 
tion of  Inter-state  commerce  and  the  language  of  the 
Act.  2.  Some  possible  commercial  results.  3.  Some 
points  bearing  on  the  relation  of  the  Act  to  the  existing 
system  of  jurisprudence. 

i.  It  seems  to  the  writer  that  in  the  framing  of  the  Act 
no  sufficient  attention  was  given  to  the  interpretation  of 
the  language  of  the  Constitution  ;  and  that  notably  the 
true  meaning  of  the  word  "  regulation,"  within  the  spirit  of 
the  Constitution,  scarcely  received  the  consideration  which 
it  deserved.  In  France,  under  the  third  Napoleon,  no 
doubt  "  regulation  "  was  practically  taken  to  mean  dry- 
nursing  by  the  State,  and  an  intrusive  supervision  of  a 
very  large  area  of  private  interest  and  personal  business. 
As  has  been  noted  above,  it  is  of  course  a  question  of 
national  bias  and  idiosyncrasy  whether  paternal  superin- 
tendence is  or  is  not  congenial  to  a  people  ;  and  the 
proper  meaning  of  "  regulation  "  is  to  some  extent  col- 
oured— if  not  actually  extended  or  restricted — by  this 
consideration.  But  among  the  English-speaking  races 
intrusive  and  inquisitorial  government  supervision  is 
habitually  resented.  "  Regulation,"  as  understood  and 
submitted  to  by  the  English  and  American  peoples,  gives 
prominence  to  reasonable  restrictions,  but  rarely  pre- 
scribes positive  rules  of  action.  The  negative  side  of  the 
term  is  dominant  ;  the  positive  side  is  subordinate.  Police 
regulation  aims  at  the  restraint  of  aggression,  the  preven- 
tion of  trespasses  and  nuisances,  and  the  redress  of  estab- 
lished grievances.  But  it  seldom  takes  under  its  control 
the  constructive  side  of  commercial  or  industrial  enter- 
prise. If  the  language  of  the  American  Constitution  be 
carefully  considered,  it  is  difficult  to  resist  the  conclusion 
that  the  "  regulation  "  of  Inter-state  commerce  was  in- 


l6o     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT, 

tended  simply  to  restrain  any  selfish  or  obstructive  policy 
which  might  prevent  or  hamper  transportation  through 
the  various  States,  and  to  redress  injury  to  the  trader  or 
consumer  which  might  directly  arise  therefrom.  In  the 
writer's  opinion,  there  is  nothing  in  the  language  to  justify 
the  notion  that  regulation  of  Inter-state  commerce  was 
intended  to  involve  the  assumption  by  the  Government  of 
the  functions  of  railroad  managers.  To  restrain  unneces- 
sary embarrassment  to  commerce  in  its  passage  through 
appropriate  channels  is  one  thing ;  to  run  the  railroads  of 
the  country  is  emphatically  another. 

If  this  view  be  sound,  the  relation  of  the  new  Act  to  the 
Constitution  would  seem  to  be  not  entirely  satisfactory. 
In  this  connection  one  or  two  points  may  properly  be  in- 
dicated. 

(a)  As  everybody  knows,  the  powers  enjoyed  by  Con- 
gress are,  in  fact,  the  aggregate  of  several  powers  carved 
out  of  the  sovereignty  claimed  by  the  several  States,  and 
surrendered  to  Congress  for  the  purpose  of  promoting 
national  unity  and  good  government.  But  these  powers 
are  contained  within  the  four  corners  of  the  written  Con- 
stitution, and  it  would  scarcely  be  safe  to  rely  on  any 
supposed  surrender  to  Congress  by  the  several  States  of 
large  inferential  powers  not  explicitly  defined  in  the 
text.  Authority  to  prevent  by  appropriate  legislation  ob- 
structions to  the  development  of  commerce  was  plainly 
granted.  But  where  is  it  shown  that  the  several  States 
surrendered  to  Congress  the  right  to  run  the  business  of 
railroad  corporations  within  the  limits  of  their  respective 
sovereignties  ? 

As  indicated  above  (pp.  97-100),  the  more  fortunate 
States  succeeded  in  inducing  native  and  foreign  capitalists 
to  make  large  outlay  in  the  construction  of  railroads,  and 


MOTES  ON-  THE  INTER-STATE   COMMERCE  ACT.      l6l 


by  this  means  to  develop  the  latent  resources  of  the 
States  in  which  their  railroads  were  situate.  The  extra- 
ordinary risks  which  constructing  companies  undertook, 
and  the  vast  amount  of  capital  which  they  locked  up, 
were  distinctly  protected  by  charters  which  expressed  the 
deliberate  will  and  purpose  of  the  people  of  those  States, 
and  formed  an  integral  part  of  their  statute  law.  It  was 
believed  at  the  date  of  such  charters  that  the  several 
States  possessed  contracting  power,  and  that  parties  con- 
tracting with  them  could  not  be  divested  of  their  rights 
under  the  Federal  Constitution  merely  because  the  States 
had  surrendered  to  Congress  the  power  of  "  regulating" 
Inter-state  commerce.  If  this  view  was  ever  sound,  it 
must  be  sound  to-day.  It  will  hardly  be  questioned  that 
as  a  net  result  the  new  Act  purports  to  vest  in  the  Com- 
mission the  practical  control  of  the  operation  of  American 
railroads.  Whether  particular  Commissioners  may  be  dis- 
posed to  push  their  power  to  its  utmost  limits  or  to  exer- 
cise it  with  great  moderation,  will  depend  on  the  constitu- 
tion and  discretion  of  the  Commission  for  the  time  being. 
(b)  It  has  been  noted  above  that  the  delegation  of 
prerogative  power  is  liable  to  serious  objection.  No 
doubt  Congress  can  properly  delegate  to  officials  strictly 
ministerial  business.  But  one  of  the  distinctions  between 
ministerial  and  legislative  business  turns  on  the  discretion 
to  determine  questions  affecting  the  public  good.  A  doubt 
has  been  expressed  above  (pp.  107-108)  whether  a  State 
can  delegate  to  a  fiscal  agent  the  right  to  virtually  modify  a 
charter  for  the  public  good  and  not  as  a  penal  measure, 
such  modification  being  (in  the  writer's  view)  a  legislative 
and  not  a  ministerial  act.  By  analogy  the  same  line  of 
reasoning  may  be  applied  to  the  action  of  Congress  when 
it  vests  in  Commissioners  powers  which  involve  the  mak- 


162     NOTES  OX  THE  INTER-STATE   COMMENCE  ACT. 

ing  or  unmaking  of  rights  of  property  distinctly  protected 
by  the  Federal  Constitution.  May  it  not  be  reasonably 
contended  that  the  authority  delegated  to  Congress  by 
the  several  States  was  so  delegated,  because  in  the  opin- 
ion of  the  several  States  Congress  was  a  proper  and  repre- 
sentative trustee?  But,  if  it  had  been  supposed  that  Con- 
gress could  sub-delegate  these  powers  (outside  of  merely 
ministerial  matters)  to  agents  or  nominees  about  whom  the 
States  had  no  specific  knowledge,  an  entirely  new  set  of 
precautionary  measures  would  have  been  instituted  by  the 
States  in  their  own  protection.  It  might  well  have  hap- 
pened that  neither  the  States  themselves,  nor  parties  con- 
tracting with  them  on  the  faith  of  their  sovereignty  and 
its  relation  to  the  Federal  Constitution,  would  have  ob- 
jected to  any  direct  exercise  of  power  by  Congress 
itself,  authorized  by  the  Constitution,  because  they  con- 
sidered that  Congress  itself  could  be  trusted  to  exercise  a 
safe  and  enlightened  discretion.  But  it  often  happens 
that  individuals  or  bodies  of  men  are  willing  to  delegate 
to  a  trustee,  in  whose  judgment  they  have  great  confidence, 
a  wide  discretionary  power  affecting  vast  personal  and 
financial  interests,  but  would  unconditionally  refuse  to 
such  trustee  the  power  of  sub-delegation  to  a  nominee 
chosen  exclusively  by  himself.  Suppose  a  State,  in  grant- 
ing a  charter  for  valuable  consideration,  had  enacted  a 
maximum  rate  for  freight  or  passengers,  and  that  the 
elasticity  accruing  to  the  managers  from  this  maximum 
constituted  the  leading  condition  of  the  prosperity  of  the 
railroad  in  question.  Is  it  competent  to  Congress,  under 
the  pretence  of  "  regulating  "  Inter-state  commerce,  and 
within  the  reasonable  interpretation  of  the  term,  to  legis- 
late away  from  the  corporation— which  has  built  a  rail- 
road and  so  paid  value  received — the  benefit  of  that 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      163 

statutory  limit  ?  Again,  if  the  business  of  a  railroad 
can  be  run  in  conformity  with  a  charter  granted  by  a 
State  in  which  it  is  situated,  with  absolute  freedom  from 
penalties,  is  it  competent  to  Congress  to  create,  ex  post 
facto,  a  liberal  schedule  of  new  offences  involving  severe 
penalties,  in  virtue  of  the  very  limited  power  surrendered 
to  it  by  the  State  for  the  purpose  of  "  regulating  "  Inter- 
state commerce  ?  Can  it  thus  handicap  out  of  the  com- 
petitive race  a  railroad  which  has  a  right  to  look  to  the 
sovereign  State  for  its  protection?  Even  if  it  be  com- 
petent to  Congress  to  create  such  new  offences  and  punish 
them  by  penalties  as  a  legislative  act,  is  it  competent  to 
that  body  to  delegate  the  discretionary  power  of  impos- 
ing, enforcing,  modifying  or  waiving  such  penalties,  as  if 
these  acts  were  matters  of  ministerial  detail*  instead  of 
constituting  a  grave  interference  with  the  rights  of  citi- 
zens? Are  not  these  acts  so  grave  as  to  need  deliberate 
legislative  sanction,  and  to  call  for  fair  consideration  by 
debate  and  discussion  under  constitutional  forms?  May  it 
not  be  true  that  a  contract,  under  which  one  can  do  busi- 
ness peacefully,  legitimately  and  in  accordance  with  the 
sense  of  the  community  in  which  one  lives,  is  "  impaired  "f 
within  the  spirit  of  the  Federal  Constitution  if  ex  post 
facto  prohibitory  penalties  are  imposed  on  it  ?  Has  not  a 
State  some  reason  for  examining  closely  the  true  nature 
of  the  powers  which  it  surrendered  to  Congress,  and  to 
contend  that  it  carved  out  of  its  sovereignty  a  right  to  pre- 
vent abuses  and  redress  grievances  within  the  meaning  of 
the  "  regulation  "  of  Inter-state  commerce,  but  certainly 
did  not  give  Congress  the  right  to  usurp  the  control  and 
supervision  of  enterprises  fostered  in  its  own  interest  and 
protected  by  its  own  sovereignty  ? 

*  Supra,  pp.  107-109.  \  Supra,  p.  106. 


164     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

(c)  The  obscurity  of  the  language  of  the  fourth  section  has 
been  liberally  discussed  by  the  public  Press,  and  the  sub- 
ject may  be  considered  threshed  out.  It  is  enough  for  the 
present  purpose  to  say  that  the  language  of  any  statute 
should,  at  the  outset,  be  sufficiently  clear  to  the  average 
understanding  of  competent  readers  to  dispense  with  the 
necessity  of  interpretation  by  the  courts,  before  compre- 
hensive and  uniform  action  can  be  confidently  taken 
in  obedience  to  its  provisions.  What  may  be  the  true 
meaning  of  the  "  regulation  of  Inter-state  commerce " ; 
what  are  its  incidents  in  connection  with  State  sovereignty 
and  Federal  authority;  and  what  interpretation  will 
be  placed  on  the  language  of  the  fourth  section,  must 
abide  the  decision  of  the  Supreme  Court  of  the  United 
States. 

2.  It  has  been  noted  above  that,  by  reason  of  imper- 
fect knowledge,  it  would  be  unprofitable  from  the  invest- 
or's point  of  view  to  make  any  elaborate  forecast  concern- 
ing the  effect  of  the  Act  on  the  trade  and  commerce  of 
the  country.  A  brief  notice,  however,  of  one  or  two 
leading  features  in  the  situation  may  be  in  order.  The  better 
opinion  prevailing  amongst  a  large  number  of  educated 
people  inclines  to  the  view  that  the  bill  indicated  by  the 
special  conditions  of  the  case  was  a  bill  defining  clearly 
and  equitably  discrimination  and  extortion,  and  restraining 
those  offences  by  appropriate  mechanism,  but  excluding 
from  its  scope  imperfectly  reasoned  conclusions  from  data 
inadequately  investigated.  Such  a  bill,  cleanly-cut  and 
dealing  exclusively  with  well-understood  points,  would 
have  commanded  universal  sympathy  and  approval. 
Granting  that  it  did  not  exhaust  the  subject,  it  would 
have  constituted  a  valuable  instalment,  and  would  have 
cleared  the  way  for  further  beneficial  legislation  when  the 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      1 6$ 

questions  to  be  subsequently  dealt  with  had  been  ex- 
haustively considered.  For  legislation  repressing  distinct 
offences  there  existed  abundant  precedents.  But  for  the 
comprehensive  treatment  of  the  "  long-  and  short-haul " 
doctrine  there  existed  no  precedent,  and  very  little  exact 
knowledge.  When  this  clause  and  the  question  of  pools 
were  included  in  the  bill,  the  lack  of  adequate  information 
on  the  subject  became  apparent. 

(a)  An  angry  and  disappointed  crowd  of  shippers  clam- 
oured for  immediate  and  drastic  remedies  for  their  own 
particular  grievances.  Their  cry  was,  in  effect,  "  Cut  the 
combs  of  the  railroad  corporations  at  all  hazards."  It 
was  plain  that  emotion  and  prejudice  overrode  the  sug- 
gestions of  enlightened  self-interest.  Producers,  who  had 
located  their  enterprises  too  far  from  their  market,  in- 
structed their  representatives  to  vote  for  a  measure,  of 
which  the  first  and  most  immediate  effect  could  only  be 
to  raise  through  rates  and  impair  the  marketable  value  of 
their  produce.  Rather  than  leave  the  railroad  corpora- 
tions alone,  the  producer  was  willing  to  "  cut  off  his  nose 
to  spite  his  face,"  and  gave  his  representative  a  mandate 
to  vote  for  the  bill.  How  the  producer  of  corn  in  a  remote 
Territory,  or  of  iron  or  coal  in  the  Southern  States,  could 
see  his  account  in  promoting  an  increased  rate  for  through 
transportation  passes  the  understanding  of  the  average  ob- 
server. Why  (e.g.}  should  the  Californian  producer  of  wool, 
sugar,  or  grapes  desire  such  a  bill  ?  Time  and  reflection 
will  no  doubt  bring  repentance  ; — but  then  repentance  (as 
we  all  know  from  experience)  does  not  always  afford  an 
escape  from  the  penalties  incident  to  indiscretion.  Al- 
ready— almost  immediately  on  the  bill  coming  into  opera- 
tion— the  Southern  Steamship  Association  is  arguing  be- 
fore the  Commission  that  the  Act  will  be  injurious  to  the 


1 66     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

prosperity  of  the  South.  This  circumstance  supplies  a 
suggestive  comment  on  the  validity  of  the  reasoning  ad- 
duced in  support  of  the  beneficial  tendency  of  the  bill, 
from  the  point  of  view  of  producers  located  at  a  great 
distance  from  their  market. 

(b)  Much  stress  has  been  laid  on  the  provision  under 
which  the  Commissioners  can  suspend  the  operation  of 
the  "  long-  and  short-haul "  clause,  on  good  cause  for  such 
action  being  shown.  The  signs  of  the  times  point  to  the 
probability  that  a  vast  number  of  corporations  will  apply 
for  the  exercise  of  this  suspension  in  their  own  self-de- 
fence. A  rule  coupled  with  an  exception  can  scarcely  be 
worth  enacting,  if  the  cases  to  which  the  exception  ap- 
plies are  more  numerous  than  those  covered  by  the  rule. 
The  familiar  relation  between  rule  and  exception  becomes 
inverted.  A  vast  amount  of  trouble,  expense  and  general 
friction  is  imposed  on  the  applicants  for  the  benefit  of  the 
exception.  To  subject  the  countless  and  complex  details 
of  railroad  administration  to  the  direct  supervision  of 
Government  officials  is  the  apotheosis  of  red  tape.  Against 
the  claim  of  disappointed  shippers,  to  the  effect  that  com- 
prehensive legislation  dealing  with  the  "  long-  and  short- 
haul  "  clause  and  with  pools  should  be  immediately  passed 
in  the  absence  of  adequate  investigation,  several  obvious 
considerations  may  be  urged.  There  is  the  equity  of  the 
general  consumer.  Rates  for  freight  and  passengers  on 
American  railroads  compare  favourably  with  those  of  any 
other  important  country,  if  the  matter  be  looked  at  all 
round,  and  the  relative  merit  of  the  service  be  taken  into 
account.  Experts  have  made  a  strong  case  in  support  of 
the  proposition,  that  the  general  public  would  be  better 
served  by  the  modes  of  railroad  administration  existing 
prior  to  the  passage  of  the  Act,  than  by  those  which  are 


NOTES  ON  THE   INTER-STATE   COMMERCE  ACT.      l6/ 

now  subjected  to  governmental  supervision.*  In  demo- 
cratic communities,  the  maximum  welfare  of  the  general 
consumer  is  a  consideration  which  can  not  be  lightly  pooh- 
poohed.  Again,  there  is  the  equity  of  the  railroad  com- 
panies. As  has  been  noted  above,  the  Federal  Govern- 
ment could  not,  and  did  not,  build  the  railroads  which  have 
contributefl  so  largely  to  national  wealth  and  progress. 
They  were,  perforce,  built  piece-meal  by  private  courage 
and  enterprise,  and  in  many  cases  aided  by  the  resources 
and  protected  by  the  sovereignty  of  the  several  States. 
On  the  whole,  they  have  served  the  public  well ;  and  the 
existing  low  standard  of  rates,  and  the  high  average  merit 
of  the  service  offered  to  the  public,  establish  this  propo- 
sition beyond  the  possibility  of  question.  As  between 
themselves  and  the  public,  they  possess  large  natural 
equities  and  cogent  statutory  rights. 

(c)  The  disappointed  shipper  is  often  the  victim  of  a 
fallacy  which  (for  lack  of  a  better  term)  may  be  called  the 
fallacy  of  the  illusory  standard.  This  apparently  fan- 
ciful expression  needs  explanation.  The  producer  who 
located  his  enterprise  at  a  point  remote  from  reasonable 
accessibility  to  transportation  did  so  with  his  eyes  open 
and  at  his  own  risk.  The  Government  did  not  compel 
him  to  do  so ;  no  railroad  invited  or  advised  him  to  do 
so.  Yet  when  he  compares  -his  position  with  that  of  his 
schoolmate  or  friend,  who  has  settled  in  a  locality  highly 
favoured  in  point  of  transportation  and  is  making  a  for- 
tune rapidly,  he  often  estimates  his  rights  by  a  false 
standard.  His  friend's  farm  is  close  to  a  competitive 
point  on  a  cheaply  constructed  railroad.  His  own  farm 
is  (say)  fifteen  miles  from  a  very  expensive  branch  rail- 

*"  Railroad  Transportation,"  by  Arthur  T.  Hadley ;  "Railroad  Prac- 
tice," by  E.  Porter  Alexander. 


1 68     NOTES  OAT  THE  INTER-STATE   COMMERCE  ACT. 

road,  which  had  rivers  to  bridge  and  mountains  to  tunnel, 
and  which  by  so  doing  became  necessarily  liable  to  heavy 
fixed  charges.  How  can  the  foolish  shipper  expect  as 
favourable  a  rate  as  his  wiser  friend  or  competitor?  The 
rate  which  he  has  a  right  to  expect  must  be  compared, 
not  merely  with  the  very  low  rate  charged  to  his  friend 
by  a  cheaply  constructed  line  for  competitive  business, 
but  with  a  way-rate  sufficient  to  give  a  living  profit  to  a 
costly  line  constructed  through  a  difficult  country.  A 
rate  on  way-business,  on  the  faith  of  which  that  expen- 
sive line  was  constructed  through  a  difficult  country,  is  no 
doubt  relatively  high,  but  may  be  entirely  reasonable.  It 
affords  to  the  badly  placed  shipper  a  far  better  chance 
than  he  would  have  possessed  if  the  line  had  never  been 
built.  If  he  settled  in  a  badly  selected  locality  after  the 
line  was  built,  he  accepted  the  position  subject  to  the 
equities  attaching  thereto.  If  the  line  was  built  after  the 
date  of  his  settlement,  it  could  of  course  only  be  built  on 
the  faith  of  remunerative  rates.  And  so  it  comes  to  pass 
that,  when  he  asks  the  -railroads  or  the  general  public  to 
indemnify  him  for  his  unfortunate  selection  of  a  location, 
he  sets  up  an  illusory  standard  of  relative  right.  To 
cite  a  familiar  illustration,  it  was  no  doubt  somewhat 
rough  on  the  five  foolish  virgins  in  the  parable  that,  at  a 
critical  moment,  they  found  their  lamps  going  out ;  but 
their  right,  as  against  the  wise  virgins,  was  confined  to 
the  right  of  entreaty.  If  they  supposed  that  they  were 
entitled  to  a  general  division  of  the  oil  which  remained, 
they  were  the  victims  of  "  an  illusory  standard  "  of  right. 
Of  course  cases  occur  in  which  conflicting  equities  re- 
quire the  deepest  kind  of  insight  for  their  true  solution. 
Much  deliberation  is  needed  to  marshal  the  equities  of 
such  cases  in  their  proper  order.  Take,  for  instance,  the 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      l6g 

case  of  the  English  farmer,  who  finds  that  imported  prod- 
uce— which  has  gone  far  to  break  his  fortunes  and  his 
heart — passes  over  English  lines  at  a  very  low  rate,  while 
his  own  produce  pays  a  relatively  high  one.  It  is  (as 
mentioned  above)  impossible  to  pooh-pooh  the  interest  of 
the  general  consumer.  Importation  of  food  at  cheap  rates 
is  a  condition  vital  to  the  welfare  of  the  masses,  though 
it  rings  the  knell  of  the  English  farmer's  prosperity.  Yet  it 
can  scarcely  be  denied  that  he,  as  well  as  the  masses,  has 
some  genuine  equities  of  his  own.  He  was  badly  knocked 
about  by  the  repeal  of  the  Corn  laws,  and  he  took  his 
punishment  with  considerable  fortitude.  Fiscal  legisla- 
tion, which  has  nursed  the  manufacturing  interest  of  the 
country,  has  done  very  little  for  him.  After  surviving 
the  withdrawal  of  protection,  it  is  a  bitter  trial  to  see  his 
foreign  competitor  virtually  subsidized.  He  has  for  years 
been  living  on  his  capital,  and  fair  minds  must  regard  his 
case  as  a  hard  one.  It  is  true  that  Mr.  Gladstone  has 
recommended  the  production  of  jam.  But  adversity 
has  rendered  the  English  farmer  sour  and  sceptical  about 
nostrums  of  this  kind.  Mr.  Gladstone,  he  says,  cannot  pos- 
sibly know  any  thing  about  the  difficulty  of  raising  a 
profitable  orchard.  As  soon  as  any  tree  was  old  enough  to 
bear  good  fruit,  he  would  feel  bound  to  hew  it  down  and 
send  a  section  of  the  stem  to  a  local  exhibition.  Such 
small  industries,  he  thinks,  need  very  patient  and  tender 
handling  if  they  are  to  do  any  good.  Paul  may  plant  and 
Apollos  may  water,  but  the  insatiable  axe  is  fatal  to  per- 
manent "  increase."  In  the  fondly  remembered  days  of 
old,  corn  and  meat  were  hum-drum,  but  profitable ;  jam 
is  Arcadian  but  precarious.  In  his  deep  need,  the  Eng- 
lish farmer  must  look  for  relief  to  some  remedy  altogether 
more  drastic  than  jam.  Any  thinker  who  will  devise  a, 


170     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

clear,  equitable  and  reasonably  final  solution  of  this  conflict 
of  interest  will  deserve  the  thanks  of  all  fair-minded  men. 
(d)  Much  weight  has  been  attributed  to  the  desirability 
of  quasi-scientific  uniformity  in  the  framing  of  rates,  and 
to  a  spurious  sort  of  iron-clad  rigidity  in  the  administra- 
tion of  railroads  differing  widely  in  their  character,  poten- 
tialities and  general  conditions  and  environment.  The 
theory  that  all  corporations,  all  producers  and  all  con- 
sumers must  imperatively  be  governed  by  inflexible 
statutory  rules,  and  that  they  should  in  all  cases  be  treated 
exactly  alike,  has  a  fine  academic  flavour.  But  in  fact, 
when  we  come  to  face  the  results  of  experience,  it  is 
found  that  there  is  no  magic  in  quasi-scientific  uniformity 
and  symmetry,  because  the  conditions  of  the  subject- 
matter  to  which  these  desirable  principles  are  to  be 
applied  are  not  sufficiently  understood;  and,  so  far  as 
they  are  understood,  appear  to  be  not  sufficiently  simple 
or  homogeneous.  Shocking  as  it  must  appear  to  the  mind 
of  the  academic  railroad  reformer,  enlightened  and  suc- 
cessful railroad  administration  consists — like  politics — of 
a  series  of  compromises.  No  doubt  railroad  administra- 
tion, to  be  permanently  sound  and  successful,  must  be 
tempered  by  a  high  sense  of  responsibility  and  informed 
with  accurate  knowledge.  In  the  writer's  opinion,  a 
rational  degree  of  publicity  would  tend  to  make  the  dis- 
cretion of  an  able  administration,  in  the  framing  of  rates 
and  tariffs,  thoroughly  acceptable  to  the  public,  without 
the  intervention  of  the  statutory  "  long-  and  short-haul  " 
clause.  Producers  and  consumers  alike  would  have  an 
even  chance,*  and  would  know  from  time  to  time  what 
accommodation  they  had  a  right  to  expect,  with  some- 
thing like  reasonable  assurance.  Disturbance  of  con- 

*  Supra,  pp.  85-86. 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      1 7 1 

tracts  would  be  greatly  economized,  and  litigation  and 
controversy  would  be  reduced  to  a  minimum.  After  all 
said  and  done,  the  maximum  welfare  of  the  great  majority 
of  consumers,  subject  to  certain  special  equities  in  favour 
of  special  classes,  is  and  ought  to  be,  in  the  last  resort, 
the  object  of  progressive  railroad  reform.  To  apply  the 
familiar  moral  of  a  great  saying  of  old,  railroad  legislation 
was  made  for  man,  and  not  man  for  railroad  legislation. 
It  is  a  very  doubtful  question  whether  the  enactment  of 
the  "  long-  and  short-haul  "  clause  can  be  considered  a 
desirable  contribution  to  the  object  in  view. 

3.  It  remains  to  consider  briefly  some  points  bearing 
on  the  relation  of  the  new  statute  to  the  general  jurispru- 
dence of  the  country.  To  substitute  a  comprehensive 
statutory  enactment  for  a  large  and  elastic  body  of  case 
law  is  always  a  step  of  grave  importance.  The  new  statute 
may  affect  a  large  area  of  vested  interests  ;  may  involve  a 
large  modification  of  familiar  remedies ;  may  prescribe  large 
changes  in  existing  rules  of  procedure.  It  may  constitute 
a  new  and  rigid  line  of  departure,  as  compared  with  the 
pre-existing  situation.  In  some  instances  it  may  create  new 
offences,  abrogate  recognized  equities,  or  abolish  customs 
sanctioned  by  experience  and  more  or  less  justified  by 
success.  In  order  to  meet  the  requirements  of  the  case 
with  any  semblance  of  adequacy,  such  a  statute  impera- 
tively calls  for  the  highest  concentration  of  trained  minds, 
and  the  clearest  language  of  the  ablest  exponent.  Though 
the  desirability  of  legislation  may  be  frankly  accepted,  a 
particular  expression  or  embodiment  of  the  proposed  policy 
may  be  liable  to  serious,  perhaps  insuperable,  objections. 
Each  particular  bill  must  stand  or  fall  on  its  own  merits. 
In  this  connection,  the  writer's  objection  to  the  new  Act  is 
that  it  undertakes  to  accomplish  too  much  in  the  changes 


1/2      NOTES  ON  THE   INTER-STATE   COMMERCE  ACT. 

which  it  imports  into  the  existing  jurisprudence  of  the 
country.  Some  specific  points  may  properly  be  indicated. 
(a)  Perhaps  the  most  important  of  these  is  one  which 
is  emphasized  by  Mr.  Dos  Passes  in  his  able  analysis  of 
the  Act,*  viz.  the  permission,  not  to  say  invitation,  to 
intending  plaintiffs  to  force  defendants  before  the  Com- 
mission without  themselves  possessing  either  a  competent 
interest  or  ^.primd  facie  grievance.  It  would  be  idle  to  de- 
scribe this  abrogation  of  a  vital  principle  of  the  common 
law  as  a  mere  matter  of  procedure.  It  goes  to  the  root 
of  sound  public  policy.  The  fathers  of  the  jurisprudence 
of  English-speaking  races  have  always  held  that  the  right 
to  ask  the  intervention  of  a  court  must  in  every  case  be 
made  dependent  on  the  possession  of  an  interest  or  the 
existence  of  a  wrong.  They  clearly  foresaw  that,  if  it 
were  open  to  every  litigious  or  meddlesome  person 
to  call  upon  the  courts  to  aid  him  in  the  prosecution 
of  vexatious  or  frivolous  purposes,  strife  would  be 
indefinitely  increased,  and  the  amateur  litigant  must 
eventually  become  the  despot  of  the  community  in 
which  he  lived.  Perhaps  no  more  beneficent  policy  is 
to  be  found  in  the  jurisprudence  of  England  or  America 
than  that  which  is  expressed  in  the  familiar  words  "  ut 
sit  finis  litium"  Of  course  this  maxim  constitutes  the 
rationale  and  justification  of  statutes  of  limitation,  which 
in  many  instances  it  would  be  difficult  to  defend  on  purely 
moral  grounds.  It  would  seem  to  the  casual  observer  that 
the  courts  have  quite  enough  to  do  in  keeping  down  the 
arrears  of  bond  fide  litigation,  instituted  by  persons  who 
have  a  competent  interest  to  assert  or  a  colourable  griev- 
ance to  redress.  To  permit  all  sorts  and  conditions  of 

*  "  The  Inter-State  Commerce  Act."     By  John  R.  Dos  Passos.     G.  P. 
Putnam's  Sons,  New  York,  1887. 


NOTES  ON  THE  INTER- STATE   COMMERCE  ACT.      173 

men  to  set  in  motion  the  machinery  of  a  new  tribunal, 
without  showing  competent  interest  or  at  least  colourable 
wrong,  is  a  far-reaching  measure.  It  is  too  far-reaching  to 
be  properly  tacked  on  to  a  legislative  act,  which  purports 
to  regulate  Inter-state  commerce,  but  does  not  primarily 
purport  to  recast  the  jurisprudence  of  the  country.  The 
regulation  of  Inter-state  commerce  is  confessedly  impor- 
tant in  its  own  way  and  within  its  own  particular  limits,  but 
the  jurisprudence  of  America  is  far  too  valuable  to  be  indi- 
rectly tampered  with.  It  is  more  vital,  in  its  relations  to  the 
maintenance  of  the  Federal  Constitution  and  the  welfare 
of  the  American  people,  than  any  other  institution  which 
can  be  named.  If  the  people  of  America  desire  to  change 
this  system  and  its  methods,  they  can  of  course  do  so  at 
their  discretion.  But,  in  the  writer's  opinion,  they  should 
do  so  only  after  consideration  and  discussion  of  all  ques- 
tions involved,  and  not  by  a  side-wind  accidentally  arising  in 
connection  with  the  regulation  of  Inter-state  commerce. 
By  parity  of  reasoning,  it  may  be  doubted  whether  the  en- 
largement of  the  jurisdiction  of  U.  S.  Circuit  Courts  be  not 
entitled  to  form  a  distinct  and  independent  subject  for 
special  debate  and  discussion. 

(b)  The  liability  to  be  mulcted  in  costs  constitutes  a" 
very  necessary  restraint  on  vexatious  litigation.  Under 
the  new  statute,  however,  no  provision  is  made  for  pay- 
ment of  costs*  of  a  successful  defendant.  Anybody  who 
pleases  may  force  a  railroad  corporation  before  the  Com- 
mission, and  impose  on  it  the  expense  and  trouble  of  de- 
fence. But,  even  if  the  attack  be  made  in  a  spirit  of  vex- 
ation or  proceed  from  mere  idle  curiosity,  the  unsuccessful 
plaintiff  gets  off  scot-free.  The  abolition  of  liability  to 

*  "  The  Inter-State  Commerce  Act."  By  John  R,  Dos  Passes.  G.  P. 
Putnam's  Sons,  New  York,  1887. 


1/4     MOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

costs  unties  the  hands  of  a  class  which  ought  to  be  con- 
sistently, and  in  many  instances  severely,  checked  and 
restrained.  By  virtue  of  the  recent  Act  there  is  opened 
to  the  meddlesome  person  a  career  at  once  congenial  and 
inexpensive,  and  the  blackmailer's  millennium  has  arrived. 
Holders  of  railroad  securities  rightly  desire  to  restrain 
litigation  affecting  their  interests  within  the  narrowest 
possible  limits. 

(c)  The  liability  of  corporations  to  persecution  of  an  un- 
precedented kind  is  not  even  thus  exhausted.     If  a  plain- 
tiff be  not  forthcoming  outside  the  organization  of  the 
Commission,  then  the  Commission  itself  may  proceed  to 
investigate.    By  section  13  the  Commissioners  may  initiate 
investigation,  and  deal  with  the  matter  as  if  a  complaint 
had  been  made.    They  may  afterwards  take  part  in  adjudi- 
cating on  the  questions  thus  raised.     This  is  a  remarkable 
deviation  from  the  traditions  of  American  jurisprudence. 

(d)  Who  are  the  persons  indicated  in  section  16,  through 
whom  the  Court,  if  it  think  fit,  may  direct  and  prosecute 
in  such  mode  as  it  may  appoint  "  all  such  enquiries  as  it 
may  think  needful  to  enable  it  to  form  a  just  judgment  "  ? 
Are  they  to  be  considered  as  in  some  sense  deputy  com- 
missioners, or  are  they  to  be  regarded  as  amateur  inform- 
ers or  fishermen  whose  services  may  be  enlisted  at  will, 
if  there  is  a   reasonable   prospect   of   sport?      It  is  im- 
possible to  resist  the  conclusion  that  the  creation  of  such 
functionaries  places  corporations  in  a  very  difficult  posi- 
tion.    Other  provisions  of  the  Act  prevent  them  from 
defending   themselves  by  familiar  methods.      They   are 
precluded  from  meeting  the  emergency,  by  asking  such 
investigating  persons  what  competent  interest  they  have 
in  the  concern  about  which  they  enquire.     They  cannot, 
with  due  regard  to  administrative  economy,  say  that  they 


NOTES  ON  THE  INTERSTATE   COMMERCE  ACT.      175 

will  place  the  business  in  the  hands  of  their  lawyers  and  re- 
sist the  intrusion,  because,  even  if  the  investigation  should 
prove  fruitless,  they  cannot  recover  their  costs.  Is  it  com- 
petent to  the  investigating  persons  to  insist  on  the  produc- 
tion by  corporations  of  books,  contracts,  accounts  or  other 
confidential  matter  ?  Is  disobedience  to  the  requisitions 
of  these  sub-delegates  or  fishermen  punishable  in  the  same 
way  as  disobedience  to  the  requisitions  of  the  Commis- 
sioners or  the  Court?  What  are  the  limits  of  possible  sub- 
delegation,  and  what  are  the  official  credentials  of  the  class 
of  sub-delegates  or  fishermen  most  remote  from  the  source 
of  central  authority  ?  To  the  casual  observer  this  mechan- 
ism seems  to  resemble  a  stray  leaf  torn  from  the  manual  of 
Continental  bureaucracy  in  the  days  of  the  third  Napoleon. 
Having  regard  to  the  high  character  and  ability  of  the  ex- 
isting Commissioners  and  to  the  dignity  of  the  Court,  it 
would  not  be  a  legitimate  contention  that  any  improper 
use  will  be  made  of  this  power.  The  objection  is  a  general 
one,  viz.  that,  if  a  particular  power  be  an  improper  one  and 
ought  not  to  be  included  in  the  Act,  it  is  an  insufficient 
answer  to  say  that  it  will  most  probably  not  be  misused. 

(e)  In  order  to  arrive  at  any  intelligent  conclusion, 
the  owner  of  railroad  property  must  compare  his  reme- 
dies under  the  system  of  jurisprudence  existing  prior  to 
the  passage  of  the  Act,  with  the  position  which  he  occu- 
pies now  that  the  bill  under  consideration  has  passed  into 
law.  It  will  of  course  occur  to  him  that,  if  a  case  in 
which  he  was  interested  were  presented  to  a  jury,  no  pre- 
sumptions would  arise  against  him  which  (roughly  speak- 
ing) were  not  warranted  by  the  evidence  before  the  Court. 
But  under  the  recent  Act  he  is  liable  to  be  fettered  by  pre- 
sumptions created  by  the  findings  of  the  Commissioners. 
Now,  the  best  of  Commissioners  are  only  mortal,  and  the 


1/6     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

thorough  investigation  of  the  matters  with  which  they 
will  probably  in  the  not  very  remote  future  be  called  on 
to  deal  may  be  expected  to  be  heavy  enough  to  tax  the 
powers  of  twenty  Commissioners  instead  of  five.  With- 
out assuming  any  lack  of  diligence  or  thoroughness  in  in- 
vestigation, the  findings  of  heavily  burthened  Commission- 
ers must  often  fail  to  be  based  on  even  approximately 
exhaustive  data.  On  the  whole,  trial  by  jury,  according  to 
constitutional  forms,  would  be  indefinitely  more  satisfac- 
tory to  the  litigant,  whether  plaintiff  or  defendant,  than 
the  remedy  prescribed  by  the  recent  Act. 

(f)  To  a  wise  and  satisfactory  system  of  jurisprudence, 
the  recognition  of  sound  principles  of  equity  and  their 
enforcement  by  honest  and  educated  representatives  are 
indeed  necessary  conditions.  But  something  further  is 
needful,  viz.  consistent  and  enlightened  rules  of  proced- 
ure. The  importance  of  this  element  as  a  factor  in  the 
beneficial  results  of  good  administration  of  law  is,  in  fact, 
greater  than  would  seem  to  be  supposed  by  the  average 
layman.  If  rules  of  procedure  are  ill-conceived  in  prin- 
ciple or  defective  in  detail,  pleading  in  turn  becomes 
tedious  in  its  processes,  and  often  futile  in  its  results. 
Issues  cannot  be  arrived  at  with  reasonable  promptitude 
or  economy.  The  chariot  of  justice  finds  its  wheels 
clogged  and  is  driven  heavily.  The  just  and  judicious 
determination  of  the  various  limitations  of  time  and  place 
which  ought  to  be  imposed  on  plaintiffs  and  defendants 
alike  are  of  immense  mechanical  importance  in  the  conduct 
of  the  litigious  business  of  the  country.  It  may  be  worth 
noting  that  in  the  recent  Act  the  lessons  of  wisdom  and 
experience  derived  from  the  past  have  not  been  ade- 
quately utilized.  By  section  13  it  is  enacted  in  effect 
that  the  rules  of  procedure  relating  to  time,  place  etc. 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      I// 

shall  in  (presumably)  a  vast  number  of  instances  be  such 
as  the  Commissioners  direct. 

The  section  provides  that,  under  certain  conditions  cov- 
ering a  very  large  area,  "  it  shall  be  the  duty  of  the  Com- 
mission to  investigate  the  matters  complained  of  in  such 
manner  and  by  such  means  as  it  shall  deem  proper."  To 
any  one,  who  can  conduct  his  legal  business  and  settle 
the  graver  issues  of  life  "  in  such  manner  and  by  such 
means  as  he  may  think  proper,"  life  must  indeed  be  worth 
living.  If  the  Commissioners  can  determine  manner  and 
means  at  their  own  discretion,  they  are  truly  masters 
of  the  whole  situation  ;  and  the  litigant  who  is  forced 
before  their  tribunal  must  be  entirely  out  of  his  latitude, 
without  a  chart  to  refer  to  or  a  compass  to  steer  by. 
It  would  be  difficult  to  effect  a  larger  delegation*  of  control 
over  litigation  than  is  conveyed  by  the  power  of  deter- 
mining "  manner  and  means."  For  some  generations  the 
suitor,  whether  plaintiff  or  defendant,  has  (not  unreasona- 
bly) relied  on  the  established  and  familiar  rules  of  pro- 
cedure for  guidance  touching  many  important  conclusions 
and  inferences,  outside  the  intrinsic  merits  of  his  case.  If 
he  wanted  to  decide  within  what  approximate  interval  of 
time  he  could  enforce  a  remedy,  he  looked  to  the  rules  of 
procedure  for  the  answer  to  his  question.  If  he  were  in 
doubt  for  how  long  a  period  hostile  proceedings  could  be 
kept  hanging  over  his  head — perhaps  clouding  his  title, 
impairing  his  credit  or  more  or  less  impeding  his  financial 
operations — he  looked  to  the  same  rules  to  furnish  a 
reply.  In  the  writer's  opinion,  these  rules  should  be  pri- 
marily devised  by  a  deliberate  consensus  of  the  courts 
themselves,  and  not  by  legislative  bodies  or  by  their 
agents  or  even  by  an  individual  Judge,  on  the  impulse  of 

*  "  The  Inter-State  Commerce  Act,"  by  John  R.  Dos  Passes,  pp.  85-86. 


178     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

the  moment.  It  may  of  course  become  necessary  or  ex- 
pedient that  a  set  of  rules  primarily  constructed  under  the 
advice  and  with  the  approval  of  a  body  of  judges  should 
be  adequately  criticised,  and,  if  found  satisfactory,  adopted 
by  the  legislative  body  to  which  it  may  appropriately  be 
referred.  But  the  average  legislator  is  never  more  com- 
pletely at  sea  than  when  he  undertakes  to  deal  with  rules 
of  procedure.  These  are  properly  within  the  province  of 
the  courts,  which  in  the  ordinary  course  of  business  are 
required  to  apply  and  enforce  them.  The  inclusion  of  an 
exceedingly  wide  discretion  in  this  respect  is  a  drawback 
which  must  be  taken  into  account  in  any  candid  consider- 
ation of  the  merits  of  the  Act.  The  foreign  investor 
would  like  to  feel  assured  that  his  remedies  as  well  as  his 
rights  are  definite,  consistent  and  trustworthy. 

To  sum  up  the  foregoing  observations,  it  will  be  gathered 
that,  in  the  writer's  opinion,  the  treatment  of  railroad 
reform  as  expressed  in  the  Inter-State  Commerce  Act 
leaves  much  to  be  desired.  As  noted  above,  a  terse  bill 
confined  exclusively  to  the  repression  of  discrimination 
and  extortion  should  have  been  first  passed.  It  could 
properly  have  been  disposed  of  by  a  short  debate,  because 
its  conditions  would  have  been  fairly  well  understood. 
If  its  definitions  and  terminology  had  been  equitable  and 
clear,  it  would  have  commanded  almost  universal  assent. 
So  far  as  it  went,  it  would  have  been  accepted  as  a  wise 
instalment  of  reform ;  and  its  prompt  passage  would  have 
by  no  means  retarded  the  approximately  exhaustive  con- 
sideration of  obscure  or  imperfectly  understood  subjects 
outside  its  legitimate  scope.  Such  short  bill  should  have 
asked  the  appointment  of  a  special  Commission  armed 
with  adequate  powers  to  investigate  problems,  for  the  cor- 
rect solution  of  which  there  existed  on  the  one  hand  no 


NOTES  ON  THE  INTER-STATE    COMMERCE  ACT.      179 

urgent  pressure,  nor  on  the  other  any  sufficient  data.  Such 
a  course  would  have  involved  some  advantages  which 
would  seem  to  be  indicated  by  the  signs  of  the  times.  Ex- 
perts, who  had  devoted  a  lifetime  to  the  solution  of  techni- 
cal difficulties,  would  have  had  an  opportunity  to  express 
their  views.  Partizan  zeal,  which  (so  far  as  can  be  judged 
by  the  context  of  circumstances)  induced  remote  South- 
ern and  Western  producers  to  support  the  bill,  would 
have  obtained  a  breathing  space  for  reconsideration  of 
views  formulated  in  the  heat  of  political  excitement.  No 
suspension  of  the  Act,  on  the  application  of  important 
sections  of  the  community,  would  have  been  necessary. 
The  doubts  thereby  (not  unreasonably)  created  as  to  the 
intrinsic  merits  of  the  Act  would  have  been  superseded, 
and  the  authority  of  the  new  legislation  would  have  been 
spared  a  very  serious  shock.  As  legislation  has  pursued 
a  course  very  different  from  that  which  commends  itself 
to  the  judgment  of  the  writer,  it  would  be  tedious  to  dis- 
cuss the  matter  further,  beyond  perhaps  indicating  ten- 
tatively the  probable  effect  of  the  recent  legislation  on 
the  interests  of  the  foreign  investor.  At  the  outset,  no 
doubt,  the  income  of  many  railroads  will  not  be  dimin- 
ished by  its  operation.  In  the  first  instance,  many  of 
them  will  be  able  to  protect  or  indemnify  themselves  in 
one  form  or  another.  On  the  first  blush  of  the  thing,  the 
restraint  imposed  on  free  transportation  will  be  welcomed 
by  the  corporations.  It  will  clearly  constitute  an  appre- 
ciable economy ;  and  the  terms  of  the  Act  afford  an  ade- 
quate loop-hole  for  escape  from  such  unpopularity  as 
might  otherwise  have  accrued  to  them  from  the  new  situ- 
ation. Again,  it  will  readily  occur  to  the  railroad  com- 
panies that  the  price  of  any  staple  commodity  delivered 
at  an  important  centre  of  distribution  and  consumption 


180     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

consists  of  two  main  items,  viz.  the  net  cost  of  produc- 
tion at  the  scene  of  production,  and  the  cost  of  transpor- 
tation thence  to  the  point  of  consumption  or  retail  distri- 
bution. Of  these  two  elements  the  Act  has  undertaken 
to  determine  one,  viz.  the  minimum  cost  of  transporta- 
tion ;  and  this  therefore  is  to  a  large  extent  a  fixed  quan- 
tity. The  second  item  is  governed  by  familiar  laws  affect- 
ing the  cost  of  production  ;  but,  so  far  as  Government 
interference  is  concerned,  is  left  to  take  care  of  itself  and 
is  therefore  elastic.  It  is  plain  that  if  a  railroad  corpora- 
tion undertakes  on  a  large  scale  the  twofold  functions  of 
producing  and  transporting,  it  can  subject  the  private  pro- 
ducer to  severe  trials.  The  improved  price  which  such 
producing  and  transporting  corporation  can  obtain  for 
transportation  will  enable  it  to  write  off  a  portion  of  the 
cost  of  production,  and  to  undersell  the  private  producer 
while  still  making  a  living  profit  for  itself.  The  operation 
of  this  principle  has  been  recently  pointed  out  £>y  an 
able  writer  in  the  Evening  Post*  and  well  illustrated  by 
the  instance  of  the  coal  trade  of  New  York.  That  this 
combination  of  the  functions  of  producing  and  transport- 
ing staple  articles  of  commerce  will  ultimately  tend  to 
sound  railroad  administration  is  contrary  to  the  writer's 
convictions.  But  it  would  be  idle  to  hold  that  rail- 
road corporations,  finding  themselves  restricted  by  the 
Act  in  the  prosecution  of  the  policy  which  they  prefer, 
will  not  endeavour  to  indemnify  themselves  by  the  adop- 
tion of  the  second-best  course  open  to  them,  viz.  that 
which  gives  the  most  lucrative  result  permitted  by  the 
new  situation. 

It  goes  without  saying  that  the  passenger  business  of 
railroads  will  be  affected  by  the  Act  to  a  much  less  serious 

*  N.   Y.  Evening  Post,  April  14,  1887. 


NOTES  ON  THE  INTER-STATE   COMMERCE  ACT.      l8l 

extent  than  their  freight  business.  Increased  weight 
will  attach  to  the  geographical  direction  of  railroads  and 
their  relation  to  competitive  water-routes,  which  will  re- 
ceive a  considerable  access  of  importance  and  prosperity. 
No  doubt  relative  differences,  in  respect  of  intrinsic 
strength  and  solvency  which  already  exist  between  rising 
and  sinking  railroads,  will  be  more  sharply  accentuated 
than  in  the  past.  Those  which  traverse  thickly  settled 
districts  and  do  a  -lucrative  way  business  will  be  able 
to  take  care  of  themselves.  But  weaker  lines,  running 
through  thinly  populated  districts  and  depending  for 
their  income  on  the  transportation  of  raw  material  to 
remote  markets,  will  find  themselves  very  severely  handi- 
capped. By  extraordinarily  low  through  rates,  the  remote 
States  and  districts,  which  produce  in  profusion  the  staple 
raw  materials  of  commerce,  were  in  the  past  brought 
within  measurable  distance  of  older  and  more  highly  de- 
veloped manufacturing  communities.  Specially  low  rates 
constituted,  in  fact,  an  appreciable  bond  of  common  in- 
terest and  commercial  unity  between  the  extremities  and 
the  centres  of  life  and  energy  in  the  great  trading  body. 
Legislation,  which  points  to  a  partial  paralysis  of  the  co- 
operation and  sympathy  which  the  old  state  of  things 
tended  to  foster,  cannot,  so  far,  be  considered  a  legitimate 
subject  for  congratulation.  The  great  inconveniences  im- 
posed on  producers  and  consumers  will,  for  a  time,  proba- 
bly be  felt  by  those  classes  more  severely  than  by  the 
railroad  interest.  But,  as  has  been  noted  above,  the  ulti- 
mate interest  of  the  transporting  companies  is  closely 
identified  with,  and  largely  overlaps,  that  of  the  producing 
and  consuming  members  of  the  community,  who  are,  in 
short,  the  people  of  the  United  States.  Sooner  or  later 
legislation,  which  embarrasses  the  vast  population  availing 


1 82      NOTES  ON  THE  INTER-STATE   COMMERCE   ACT. 

itself  of  transportation,  is  destined  to  affect  the  interests 
of  the  companies  which  serve  it.  Sooner  or  later  it  will 
be  perceived  that  unnecessary  Government  supervision  in 
the  conduct  of  the  vast  interests,  which  the  Government 
cannot  handle  as  efficiently  as  private  administrators,  is 
retrogressive  in  principle,  and  unsatisfactory  in  result.  It 
will  presently  be  discovered  that  comparative  freedom  from 
red  tape  will  give  the  Canadian  railroads  an  immense  ad- 
vantage over  their  American  rivals.  If,  instead  of  being 
a  tribunal  for  the  prevention  and  redress  of  grievances, 
the  Commission  is  destined  to  become  a  vast  bureaucratic 
machine  virtually  supervising  the  books  and  papers  con- 
nected with  the  immense  railroad  mileage  of  America, 
the  institution  will  find  many  honest  opponents.  If  the 
business  of  supervision  is  to  be  thoroughly  carried  out,  an 
enormous  staff  of  officials  must  be  provided  at  the  public 
expense.  If  it  is  to  be  conducted  in  a  partial  or  perfunc- 
tory manner,  the  legislation  which  authorized  it  could 
have  been  scarcely  worth  enacting.  As  there  exist  no 
sufficient  data  to  justify  confident  forecast,  the  investor 
will  do  well  to  await  further  developments,  before  com- 
mitting himself  to  important  decisions.  On  the  one  hand 
he  has  the  valuable  assurance  that  the  Commission  ap- 
pointed to  administer  the  Act  consists  of  gentlemen  of 
the  highest  ability  and  integrity,  and  that  they  will  use 
their  powers  with  wisdom  and  moderation.  On  the  other 
hand,  the  Act  which  they  are  called  on  to  administer  is 
difficult  of  interpretation,  and,  so  far  as  can  be  gathered 
from  current  indications,  pregnant  with  obscure  and 
unforeseen  problems.  For  what  it  may  be  worth,  the 
writer  offers  the  opinion  that,  when  the  pulse  of  the 
nation  has  been  adequately  felt,  it  will  be  agreed  on  all 
hands  that  the  recent  Act  does  more  harm  than  good ; 


NOTES  ON  THE  INtER-STATE   COMMERCE  ACT.      183 

and  supplementary  legislation  will  be  urged  by  many 
large  sections  of  the  community.  It  will  depend  on  the 
magnitude  of  the  property  at  stake,  and  the  earnestness 
with  which  its  owners  prosecute  their  purpose,  whether  a 
substantial  modification  of  the  Act  be  promptly  made,  or 
whether  the  interests  of  the  country  generally  be  destined 
to  remain  for  a  long  time  subject  to  gratuitous  embar- 
rassment. In  the  adjustment  of  commercial  and  trading 
relations  the  American  people  exhibit  a  very  high  degree 
of  shrewdness  and  sagacity.  It  can  scarcely  fail  to  strike 
an  observer  that  in  the  so-called  struggle  between  the 
railroads  and  the  people  each  party  has  in  the  past  sub- 
stantially obtained  pretty  much  what  it  wanted  and  was 
entitled  to  have.  Only  the  advanced  and  fiery  politician 
ever  pretended  to  believe  that  this  struggle  was  interne- 
cine, and  must  end  in  Caesarism  on  the  one  hand  or  social- 
ism on  the  other.  Practical  observers  regarded  such 
prophecies  as  nonsensical  and  inconsistent  with  the  habits 
and  bias  of  the  American  people.  When  legislative  ob- 
stacles were  placed  in  the  path  of  railroads,  they  at  first 
strove  to  break  them  down  and  to  control  legislatures. 
Failing  in  many  instances  to  accomplish  this  result,  they 
compromised  with  the  obstacles  in  their  path  in  a  very  sen- 
sible way.  Like  Jacob  at  Bethel,  they  used  the  stones  for 
a  pillow  and  had  a  very  comfortable  night.  On  the  other 
hand,  the  people  were  determined  to  have  low  rates ;  and 
it  soon  became  apparent  that  they  could  get  them,  if  they 
permitted  the  railroads  themselves  within  rational  limits 
to  work  out  the  problem  in  their  own  way.  They  en- 
joyed, prior  to  the  passage  of  the  Inter-State  Commerce 
Act,  the  benefit  of  low  rates  and  a  good  service.  A  rea- 
sonable modus  vivendi  had  been  arrived  at,  and  the  great 
bulk  of  the  community  was  fairly  well  satisfied.  In  the 


184     NOTES  ON  THE  INTER-STATE   COMMERCE  ACT. 

writer's  opinion,  the  experience  of  the  past  affords  the 
best  key  to  the  future ;  and  what  has  happened  before  in 
connection  with  the  railroad  situation  is  likely  to  happen 
again.  If  this  be  so,  the  new  legislation  would  appear  cal- 
culated to  challenge  the  vigilance,  but  not  necessarily  to 
excite  the  alarm,  of  the  foreign  investor. 

Of  course,  to  the  radical  politician  it  is  a  vital  article  of 
faith  that,  at  all  times  and  in  all  places,  "  something  must 
be  done."  It  is  too  much  the  fashion  of  the  day  to  re- 
present the  merest  fads  of  individual  crotcheteers  as  an 
essential  part  of  the  majestic  onward  march  of  some  great 
popular  movement.  The  public  are  solemnly  warned  that 
to  resist  the  noble  and  impressive  procession  of  events  is 
wilfully  to  oppose  the  inevitable.  It  is  true  that  Gamaliel 
of  old  advised  his  hearers  to  avoid  fighting  against  God. 
But,  if  closely  examined,  the  legislation  promoted  by  the 
crotcheteer  often  turns  out  to  be  by  no  means  "  of  God," 
but  very  much  "  of  man."  The  attitude  of  mind  which 
regards  every  popular  fad  or  caprice  as  an  expression  of 
the  inevitable  is  apt  to  degenerate  into  a  sort  of  dilettante 
fatalism.  Why  not  examine  closely  and  fearlessly  the 
constituent  elements  of  the  supposed  popular  movement? 
It  may  be  that  what  is  described  as  a  "  majestic  proces- 
sion "  will  turn  out  to  be  a  mere  masquerade,  and  that 
many  who  pose  as  patriots  are  only  mummers. 

The  point  of  view  of  the  investor  is  separated  from  that 
of  the  thorough-going  political  partizan  by  a  broad  line 
of  demarcation.  Their  relative  attitude  is  something 
like  that  of  the  claimants  to  possession  of  the  child  in  the 
familiar  "  Judgment  of  Solomon."  In  America — as  in 
England  to-day — the  ambitious  politician  is  quite  willing 
that  the  infant  should  be  cut  in  halves,  if  by  such  an  ar- 
rangement he  can  disappoint  and  "dish"  his  opponents. 


NOTES-  ON  THE  INTER-STATE   COMMERCE  ACT.      1 8$ 

On  the  contrary,  the  investor,  as  such,  has  no  record  to 
maintain  and  no  opponent  to  "dish";  and  he  would 
rather  make  concessions  than  see  the  child  vivisected. 
His  consistent  desire  is  not  that  "  something  should  be 
done,"  but  that  whatever  is  undertaken  be  well  done. 


CHAPTER    XX. 

THE   "ALIEN   LAND   ACT." 

THE  recent  Act  entitled  "  An  Act  to  restrict  the  owner- 
ship of  real  estate  in  the  Territories  to  American  citizens, 
and  so  forth,"  popularly  known  as  the  "  Alien  Land  Act," 
contains  provisions  of  very  considerable  importance,  from 
the  point  of  view  of  that  class  of  foreign  investors  which 
has,  in  the  past,  locked  up  a  large  amount  of  capital  in 
the  acquisition  of  American  land.  Prior  to  the  passage 
of  the  Act,  many  investors  of  this  class  had  intended  to  en- 
large their  existing  investments  and  to  compact  and  con- 
solidate them  by  further  purchases.  Other  groups  of 
capitalists,  who  were  not  committed  in  the  past  but  were 
distrustful  of  European  spheres  of  investment,  had  enter- 
tained the  project  of  acquiring  large  blocks  of  land  in 
America.  By  persons  acquainted  with  the  situation  it 
could  not  for  a  moment  be  doubted  that  legislation  of  a 
restrictive  kind  would  be  carried  through  both  Houses  of 
Congress,  as  soon  as  the  condition  of  legislative  business 
rendered  such  a  result  feasible.  It  may  therefore  be 
hoped  that  the  passage  of  the  Alien  Land  Bill  will  create 
serious  disappointment  exclusively  in  the  minds  of  those 
who  failed  to  interpret  the  signs  of  the  times.  Inasmuch 
however  as  the  interests  involved  are  substantial,  and  the 
provisions  of  the  Act  somewhat  stringent,  it  is  thought 
that  a  copy  of  the  text  may  form  a  convenient  appendix 
to  the  present  notes.  It  will  readily  appear  to  the  foreign 

186 


THE  ALIEN  LAND  ACT.  187 

owner  of  land  in  America  that,  while  his  future  interests 
are  restricted,  his  investments  in  the  past  are  not  necessarily 
prejudiced  to  any  serious  extent.  The  limitations  imposed 
by  the  Act  are  undoubtedly  cogent,  and  the  penalties  se- 
vere. If  the  history  of  the  past  be  wisely  interpreted,  it  may 
be  doubted  whether  they  are  altogether  wise.  But  they 
plainly  represent  the  views  of  the  American  people ;  and 
therefore  elaborate  discussion  from  the  investor's  point  of 
view  would  be  superfluous — not  to  say  tiresome.  The 
upshot  of  the  Act  is  shortly  this  :  that  the  bond  fide  alien 
owner  of  American  land  can  protect  legitimate  interests 
already  acquired  ;  but  that,  as  regards  future  enterprises, 
he  is  compelled  to  draw  in  his  horns.  The  wisdom  and 
expediency  of  the  "  twenty-per-cent  "  limit  of.  course  ad- 
mit of  wide  difference  of  opinion.  In  the  writer's  view,  it 
is  a  somewhat  premature  expression  of  patriotism  at  the 
expense  of  obvious  profit.  But,  if  the  American  people 
think  that  the  time  has  arrived  to  check  foreign  invest- 
ment in  land,  they  are  clearly  the  masters  of  the  position. 


APPENDIX  A. 


Extracts  from  the  Constitution  of  the  State  of  Georgia 
relating  to  railroads,  together  with  the  law  creating  a  Railroad 
Commission. 

CONSTITUTION. 

ARTICLE  IV.— SECTION  II. 

Paragraph  I. — The  power  and  authority  of  regulating  rail- 
road freight  and  passenger  tariffs,  preventing  unjust  discrim- 
inations, and  requiring  reasonable  and  just  rates  of  freight 
and  passenger  tariffs,  are  hereby  conferred  upon  the  General 
Assembly,  whose  duty  it  shall  be  to  pass  laws,  from  time  to 
time,  to  regulate  freight  and  passenger  tariffs,  to  prohibit 
unjust  discriminations  on  the  various  railroads  of  this  State, 
and  to  prohibit  said  roads  from  charging  other  than  just 
and  reasonable  rates,  and  enforce  the  same  by  adequate  pen- 
alties. 

Par.  III. — The  General  Assembly  shall  not  remit  the  for- 
feiture of  the  charter  of  any  corporation,  now  existing,  nor 
alter  or  amend  the  same,  nor  pass  any  other  general  or  special 
law  for  the  benefit  of  said  corporation,  except  upon  the  condi- 
tion that  such  corporation  shall  thereafter  hold  its  charter  sub- 
ject to  the  provisions  of  this  Constitution  ;  and  every  amend- 
ment of  any  charter  of  any  corporation  in  this  State,  or  any 
special  law  for  its  benefit,  accepted  thereby,  shall  operate  as  a 
novation  of  said  charter,  and  shall  bring  the  same  under  the 
provisions  of  this  Constitution  :  Provided,  that  this  section 
shall  not  extend  to  any  amendment  for  the  purpose  of  allowing 

189 


190  APPENDIX. 

any  existing  road  to  take  stock  in  or  aid  in  the  building  of  any 
branch  road. 

Par.  IV. — The  General  Assembly  of  this  State  shall  have  no 
power  to  authorize  any  corporation  to  buy  shares,  or  stock,  in 
any  other  corporation  in  this  State,  or  elsewhere,  or  to  make 
any  contract,  or  agreement  whatever,  with  any  such  corpora- 
tion, which  may  have  the  effect,  or  be  intended  to  have  the 
effect,  to  defeat  or  lessen  competition  in  their  respective  busi- 
nesses, or  to  encourage  monopoly  ;  and  all  such  contracts  and 
agreements  shall  be  illegal  and  void. 

Par.  V. — No  railroad  company  shall  give,  or  pay,  any  rebate, 
or  bonus  in  the  nature  thereof,  directly  or  indirectly,  or  do  any 
act  to  mislead  or  deceive  the  public  as  to  the  real  rates  charged 
or  received  for  freights  or  passage  ;  and  any  such  payments 
shall  be  illegal  and  void,  and  these  prohibitions  shall  be  en- 
forced by  suitable  penalties. 

Par.  VI. — No  provisions  of  this  article  shall  be  deemed,  held 
or  taken  to  impair  the  obligation  of  any  contract  heretofore 
made  by  the  State  of  Georgia. 

Par.  VII. — The  General  Assembly  shall  enforce  the  pro- 
visions of  this  article  by  appropriate  legislation. 


The  following  is  the  law  under  which  the  Railroad  Com- 
mission was  created,  being  Act  No.  269,  Part  i,  Title  12,  of  the 
Acts  and  Resolutions  of  the  General  Assembly  of  the  State  of 
Georgia,  1878-1879  : 

AN  ACT 

To  provide  for  the  regulation  of  railroad  freight  and  passenger 
tariffs  in  this  State ;  to  prevent  unjust  discrimination  and 
extortion  in  the  rates  charged  for  transportation  of  passengers 
and  freights •,  and  to  prohibit  railroad  companies,  corporations 
and  lessees  in  this  State  from  charging  other  than  just  and 
reasonable  rates,  and  to  punish  the  same,  and  prescribe  a  mode 


APPENDIX.  IQI 

of  procedure  and  rules  of  evidence  in  relation  thereto  j  and  to 
appoint  Commissioners,  and  to  prescribe  their  powers  and  duties 
in  relation  to  the  same. 

WHEREAS,  it  is  made  the  duty  of  the  General  Assembly,  in 
article  4,  paragraph  2,  and  section  i  of  the  Constitution,  to 
pass  laws  from  time  to  time  to  regulate  freight  and  passenger 
tariffs  ;  to  prohibit  unjust  discriminations  on  the  various  rail- 
roads of  this  State,  and  to  prohibit  railroads  from  charging 
other  than  just  and  reasonable  rates,  and  enforce  the  same  by 
adequate  penalties  ;  therefore, 

SECTION  i. — Be  it  enacted  by  the  General  Assembly  of  Georgia, 
That  there  shall  be  three  Commissioners,  appointed  by  the 
Governor,  with  the  advice  and  consent  of  the  Senate,  to  carry 
out  the  provisions  of  this  Act,  of  whom  one  shall  be  of  experi- 
ence in  the  law,  and  one  of  experience  in  railway  business. 
After  the  expiration  of  the  terms  of  the  office  of  the  Commis- 
sioners first  appointed,  the  term  of  office  of  successors  shall  be 
six  years  ;  but,  at  the  first  appointment,  one  Commissioner 
shall  be  appointed  for  two  years,  one  for  four  years,  and  one 
for  six  years.  The  salary  of  each  Commissioner  shall  be  twenty- 
five  hundred  dollars,  to  be  paid  from  the  Treasury  of  the  State. 
Any  Commissioner  may  be  suspended  from  office  by  order  of 
the  Governor,  who  shall  report  the  fact  of  such  suspension,  and 
the  reasons  therefor,  to  the  next  General  Assembly,  and  if  a 
majority  of  each  branch  of  the  General  Assembly  declare  that 
said  Commissioner  shall  be  removed  from  office,  his  term  of 
office  shall  expire.  The  Governor  shall  have  the  same  power 
to  fill  vacancies  in  the  office  of  Commissioner  as  to  fill  other 
vacancies,  and  if,  for  any  reason,  said  Commissioners  are  not 
appointed  during  the  present  session  of  the  General  Assembly, 
the  Governor  shall  appoint  them  thereafter,  and  report  to  the 
next  Senate,  but  the  time  until  then  shall  not  be  counted  as 
part  of  the  term  of  office  of  said  Commissioners,  respectively, 
as  herein  provided.  Said  Commissioners  shall  take  an  oath  of 


192  APPENDIX. 

office,  to  be  framed  by  the  Governor,  and  shall  not,  jointly  or 
severally,  or  in  any  way,  be  the  holders  of  any  railroad  stock  or 
bonds,  or  be  the  agent  or  employee  of  any  railroad  company,  or 
have  any  interest  in  any  way  in  any  railroad,  and  shall  so  con- 
tinue during  the  term  of  office  ;  and  in  case  any  Commissioner 
becomes  disqualified  in  any  way,  he  shall  at  once  remove  the 
disqualification  or  resign,  and  on  failure  so  to  do,  he  must  be 
suspended  from  office  by  the  Governor,  and  dealt  with  as  here- 
inafter provided.  In  any  case  of  suspension  the  Governor 
may  fill  the  vacancy  until  the  suspended  Commissioner  is  re- 
stored or  removed. 

SEC.  II. — That  said  Commissioners  shall  be  furnished  with 
an  office,  necessary  furniture,  and  stationery,  and  may  employ 
a  secretary  or  clerk,  at  a  salary  of  twelve  hundred  dollars,  at 
the  expense  of  the  State.  The  office  of  said  Commissioners 
shall  be  kept  in  Atlanta,  and  all  sums  of  money  authorized  to 
be  paid  by  this  Act  out  of  the  State  Treasury  shall  be  paid 
only  on  the  order  of  the  Governor  :  Provided,  that  the  total 
sum  to  be  expended  by  said  Commissioners  for  office  rent,  fur- 
niture, and  stationery  shall,  in  no  case,  exceed  the  sum  of  five 
hundred  dollars  ($500.00,)  or  so  much  thereof  as  may  be  neces- 
sary, per  annum. 

SEC.  III. — That  from  and  after  the  passage  of  this  Act,  if  any 
railroad  corporation,  organized  or  doing  business  in  this  State, 
under  any  Act  of  incorporation  or  general  law  of  this  State 
now  in  force,  or  which  may  hereafter  be  enacted,  or  any  rail- 
road corporation  organized,  or  which  may  hereafter  be  organ- 
ized, under  the  laws  of  any  other  State,  and  doing  business  in 
this  State,  shall  charge,  collect,  demand,  or  receive  more  than  a 
fair  and  reasonable  rate  of  toll  or  compensation  for  the  trans- 
portation of  passengers  or  freight  of  any  description,  or  for  the 
use  and  transportation  of  any  railroad-car  upon  its  track,  or 
any  of  its  branches  thereof,  or  upon  any  railroad  within  this 
State  which  it  has  the  right,  license,  or  permission  to  use,  oper- 
ate, or  control,  the  same  shall  be  deemed  guilty  of  extortion, 


APPENDIX.  193 

and,  upon  conviction  thereof,  shall  be  dealt  with  as  hereinafter 
provided. 

SEC.  IV. — That  if  any  railroad  corporation  as  aforesaid  shall 
make  any  unjust  discrimination  in  its  rates  or  charges  of  toll  or 
compensation  for  the  transportation  of  passengers  or  freights  of 
any  description,  or  for  the  use  and  transportation  of  any  rail- 
road-car upon  its  said  road,  or  upon  any  of  the  branches  there- 
of, or  upon  any  railroads  connected  therewith,  which  it  has  the 
right,  license,  or  permission  to  operate,  control  or  use,  within 
this  State,  the  same  shall  be  deemed  guilty  of  having  violated 
the  provisions  of  this  Act,  and,  upon  conviction  thereof,  shall 
be  dealt  with  as  hereinafter  provided. 

SEC.  V. — That  the  Commissioners  appointed  as  hereinbefore 
provided,  shall,  as  provided  in  the  next  section  of  this  Act, 
make  reasonable  and  just  rates  of  freight  and  passenger  tariffs, 
to  be  observed  by  all  railroad  companies  doing  business  in  this 
State  on  the  railroads  thereof ;  shall  make  reasonable  and 
just  rules  and  regulations,  to  be  observed  by  all  railroad  com- 
panies doing  business  in  this  State,  as  to  charges  at  any  and  all 
points,  for  the  necessary  handling  and  delivering  of  freights ; 
shall  make  such  just  and  reasonable  rules  and  regulations  as 
may  be  necessary  for  preventing  unjust  discriminations  in  the 
transportation  of  freight  and  passengers  on  the  railroads  in  this 
State  ;  shall  make  reasonable  and  just  rates  of  charges  for  use 
of  railroad-cars  carrying  any  and  all  kinds  of  freight  and  pas- 
sengers on  said  railroads,  no  matter  by  whom  owned  or  carried  ; 
and  shall  make  just  and  reasonable  rules  and  regulations,  to  be 
observed  by  said  railroad  companies  on  said  railroads,  to  pre- 
vent the  giving  or  paying  of  any  rebate  or  bonus,  directly  or  in- 
directly, and  from  misleading  or  deceiving  the  public  in  any 
manner  as  to  the  real  rates  charged  for  freight  and  passengers  : 
Provided,  that  nothing  in  this  Act  contained  shall  be  taken  as  in 
any  manner  abridging  or  controlling  the  rates  for  freight  charged 
by  any  railroad  company  in  this  State  for  carrying  freight  which 
comes  from  or  goes  beyond  the  boundaries  of  the  State,  and  on 


194  APPENDIX. 

which  freight  less  than  local  rates  on  any  railroad  carrying  the 
same  are  charged  by  such  railroad,  but  said  railroad  companies 
shall  possess  the  same  power  and  right  to  charge  such  rates  for 
carrying  such  freights  as  they  possessed  before  the  passage  of 
this  Act ;  and  said  Commissioners  shall  have  full  power  by 
rules  and  regulations  to  designate  and  fix  the  difference  in  rates 
of  freight  and  passenger  transportation,  to  be  allowed  for  longer 
and  shorter  distances  on  the  same  or  different  railroads,  and 
to  ascertain  what  shall  be  the  limits  of  longer  and  shorter  dis- 
tances. 

SEC.  VI. — That  the  said  Railroad  Commissioners  are  hereby 
authorized  and  required  to  make  for  each  of  the  railroad  cor- 
porations doing  business  in  this  State,  as  soon  as  practicable,  a 
schedule  of  just  and  reasonable  rates  of  charges  for  the  trans- 
portation of  passengers  and  freights  and  cars  on  each  of  said 
railroads  ;  and  said  schedule  shall,  in  suits  brought  against  any 
such  railroad  corporations  wherein  is  involved  the  charges  of 
any  such  railroad  corporation  for  the  transportation  of  any  pas- 
senger or  freight  or  cars,  or  unjust  discrimination  in  relation 
thereto,  be  deemed  and  taken  in  all  courts  of  this  State  as  suf- 
ficient evidence  that  the  rates  therein  fixed  are  just  and  reason- 
able rates  of  charges  for  the  transportation  of  passengers  and 
freights  and  cars  upon  the  railroads  ;  and  said  Commissioners 
shall,  from  time  to  time,  and  as  often  as  circumstances  may  re- 
quire, change  and  revise  said  schedules.  When  any  schedule 
shall  have  been  made  or  revised,  as  aforesaid,  it  shall  be  the 
duty  of  said  Commissioners  to  cause  publication  thereof  to  be 
made  for  four  successive  weeks  in  some  public  newspapers 
published  in  the  cities  of  Atlanta,  Augusta,  Albany,  Savannah, 
Macon,  Rome,  and  Columbus,  in  this  State  ;  and  after  the 
same  shall  be  so  published,  it  shall  be  the  duty  of  all  such  rail- 
road companies  to  post,  at  all  their  respective  stations,  in  a 
conspicuous  place,  a  copy  of  said  schedule  for  the  protection 
of  the  people  :  Provided,  that  the  schedules  thus  prepared  shall 
not  be  taken  as  evidence,  as  herein  provided,  until  schedules 


APPENDIX.  195 

shall  have  been  prepared  and  published  as  aforesaid,  for  all  the 
railroad  companies  now  organized  under  the  laws  of  this  State, 
or  that  may  be  organized  at  the  time  of  said  publication.  All 
such  schedules  purporting  to  be  printed  and  published  as 
aforesaid,  shall  be  received  and  held  in  all  such  suits,  asprima 
facie  the  schedules  of  said  Commissioners,  without  further 
proof  than  the  production  of  the  schedules  desired  to  be  used 
as  evidence,  with  a  certificate  of  the  Railroad  Commission 
that  the  same  is  a  true  copy  of  the  schedule  prepared  by  them 
for  the  railroad  company  or  corporation  therein  named,  and 
that  the  same  has  been  duly  published  as  required  by  law, 
stating  the  name  of  the  paper  in  which  the  same  was  published, 
together  with  the  date  and  place  of  said  publication. 

SEC.  VII. — That  it  shall  be  the  duty  of  said  Commissioners  to 
investigate  the  books  and  papers  of  all  the  railroad  companies 
doing  business  in  this  State,  to  ascertain  if  the  rules  and  regu- 
lations aforesaid  have  been  complied  with,  and  to  make  per- 
sonal visitation  of  railroad  offices,  stations  and  other  places  of 
business  for  the  purpose  of  examination,  and  to  make  rules 
and  regulations  concerning  such  examinations,  which  rules  and 
regulations  shall  be  observed  and  obeyed  as  other  rules  and 
regulations  aforesaid  ;  said  Commissioners  shall  also  have  full 
power  and  authority  to  examine  all  agents  and  employees  of 
said  railroad  companies  and  other  persons,  under  oath  or  other- 
wise, in  order  to  procure  the  necessary  information,  to  make 
just  and  reasonable  rates  of  freight  and  passenger  tariffs,  and 
to  ascertain  if  such  rules  and  regulations  are  observed  or  vio- 
lated, and  to  make  necessary  and  proper  rules  and  regulations 
concerning  such  examination,  and  which  rules  and  regulations 
herein  provided  for  shall  be  obeyed  and  enforced  as  all  other 
rules  and  regulations  provided  for  in  this  Act. 

SEC.  VIII. — That  all  contracts  and  agreements  between  rail- 
road companies  doing  business  in  this  State,  as  to  rates  of 
freight  and  passenger  tariffs,  shall  be  submitted  to  said  Com- 
missioners for  inspection  and  correction,  that  it  may  be  seen 


196  APPENDIX. 

whether  or  not  they  are  a  violation  of  law  or  of  the  provisions 
of  the  Constitution,  or  of  this  Act,  or  of  the  rules  and  regula- 
tions of  said  Commissioners  ;  and  all  arrangements  and  agree- 
ments whatever  as  to  the  division  of  earnings  of  any  kind  by 
competing  railroad  companies  doing  business  in  this  State, 
shall  be  submitted  to  said  Commissioners  for  inspection  and 
approval,  in  so  far  as  they  affect  rules  and  regulations  made  by 
said  Commissioners,  to  secure  to  all  persons  doing  business 
with  said  companies  just  and  reasonable  rates  of  freight  and 
passenger  tariffs  ;  and  said  Commissioners  may  make  such  rules 
and  regulations  as  to  such  contracts  and  agreements  as  may  be 
then  deemed  necessary  and  proper,  and  any  such  agreements 
not  approved  by  such  Commissioners,  or  by  virtue  of  which 
rates  shall  be  charged  exceeding  the  rates  fixed  for  freight  and 
passengers,  shall  be  deemed,  held,  and  taken  to  be,  violations 
of  article  4,  section  i,  paragraph  4  of  the  Constitution,  and 
shall  be  illegal  and  void. 

SEC.  IX. — That  if  any  railroad  company  doing  business  in 
this  State,  by  its  agents  or  employees  shall  be  guilty  of  a  viola- 
tion of  the  rules  and  regulations  provided  and  prescribed  by 
said  Commissioners  ;  and  if,  after  due  notice  of  such  violation 
given  to  the  principal  officer  thereof,  ample  and  full  recom- 
pense for  the  wrong  or  injury  done  thereby  to  any  person  or 
corporation,  as  may  be  directed  by  said  Commissioners,  shall 
not  be  made  within  thirty  days  from  the  time  of  such  notice, 
such  company  shall  incur  a  penalty  for  each  offense  of  not  less 
than  one  thousand  dollars,  nor  more  than  five  thousand  dollars, 
to  be  fixed  by  the  presiding  Judge.  An  action  for  the  recovery 
of  such  penalty  shall  lie  in  any  county  in  the  State  where 
such  violation  has  occurred,  or  wrong  has  been  perpetrated,  and 
shall  be  in  the  name  of  the  State  of  Georgia.  The  Commis- 
sioners shall  institute  such  action  through  the  Attorney-General 
or  Solicitor-General,  whose  fees  shall  be  the  same  as  now  pro- 
vided by  law. 

SEC.  X. — That  if  any  railroad  company  doing  business  in  this 


APPENDIX.  IQ7 

State  shall,  in  violation  of  any  rule  or  regulation  provided  by 
the  Commissioners  as  aforesaid,  inflict  any  wrong  or  injury  on 
any  person,  such  person  shall  have  a  right  of  action  and  re- 
covery for  such  wrong  or  injury  in  the  county  where  the  same 
was  done,  in  any  court  having  jurisdiction  thereof,  and  the 
damages  to  be  recovered  shall  be  the  same  as  in  actions  be- 
tween individuals,  except  that  in  cases  of  wilful  violation  of 
law,  such  railroad  companies  shall  be  liable  to  exemplary  dam- 
ages :  Provided,  that  all  suits  under  this  Act  shall  be  brought 
within  twelve  months  after  the  commission  of  the  alleged 
wrong  or  injury. 

SEC.  XI. — That  in  all  cases  under  the  provisions  of  this  Act 
the  rules  of  evidence  shall  be  the  same  as  in  civil  actions,  ex- 
cept as  hereinbefore  otherwise  provided.  All  fines  recovered 
under  the  provisions  of  this  Act  shall  be  paid  into  the  State 
Treasury,  to  be  used  for  such  purposes  as  the  General  Assem- 
bly may  provide.  The  remedies  hereby  given  the  persons  in- 
jured shall  be  regarded  as  cumulative  to  the  remedies  now 
given  by  law  against  railroad  corporations,  and  this  Act  shall 
not  be  construed  as  repealing  any  statute  giving  such  remedies. 

SEC.  XII. — That  the  terms  "  railroad  corporation,"  or  "  rail- 
road company,"  contained  in  this  Act  shall  be  deemed  and 
taken  to  mean  all  corporations,  companies,  or  individuals  now 
owning  or  operating,  or  which  may  hereafter  own  or  operate 
any  railroad,  in  whole  or  in  part,  in  this  State,  and  the  provis- 
ions of  this  Act  shall  apply  to  all  persons,  firms  and  companies, 
and  to  all  associations  of  persons,  whether  incorporated  or 
otherwise,  that  shall  do  business  as  common  carriers  upon  any 
of  the  lines  of  railroad  in  this  State,  (street  railways  excepted) 
the  same  as  to  railroad  corporations  hereinbefore  mentioned. 

SEC.  XIII. — That  all  railroad  companies  in  this  State  shall,  on 
demand,  issue  duplicate  freight  receipts  to  shippers,  in  which 
shall  be  stated  the  class  or  classes  of  freight  shipped,  the 
freight  charges  over  the  road  giving  the  receipt,  and  so  far  as 
practicable  shall  state  the  freight  charges  over  other  roads  that 


198  APPENDIX. 

carry  such  freight.  When  the  consignee  presents  the  railroad 
receipt  to  the  agent  of  the  railroad  that  delivers  such  freight, 
such  agent  shall  deliver  the  article  shipped  on  payment  of  the 
rate  charged  for  the  class  of  freights  mentioned  in  the  receipt. 
If  any  railroad  company  shall  violate  this  provision  of  the 
statute,  such  railroad  company  shall  incur  a  penalty  to  be 
fixed  and  collected  as  provided  in  section  nine  of  this  Act. 

SEC.  XIV. — That  it  shall  be  the  duty  of  the  Commissioners 
herein  provided  for,  to  make  to  the  Governor  semi-annual 
reports  of  the  transactions  of  their  office,  and  to  recommend 
from  time  to  time  such  legislation  as  they  may  deem  advisable 
under  the  provisions  of  this  Act. 

SEC.  XV. — That  said  Railroad  Commissioners,  in  making  any 
examination  for  the  purpose  of  obtaining  information  pursuant 
to  this  Act,  shall  have  power  to  issue  subpoenas  for  the  attend- 
ance of  witnesses,  by  such  rules  as  they  may  prescribe.  And 
said  witnesses  shall  receive  for  such  attendance  two  dollars  per 
day,  and  five  cents  per  mile,  traveled  by  the  nearest  practicable 
route  in  going  to  and  returning  from  the  place  of  meeting  of 
said  Commissioners,  to  be  ordered  paid  by  the  Governor  upon 
presentation  of  subpoenas,  sworn  to  by  the  witnesses,  as  to  the 
number  of  days  served  and  miles  travelled,  before  the  clerk  of 
said  Commissioners,  who  is  hereby  authorized  to  administer 
oaths.  In  case  any  person  shall  wilfully  fail  or  refuse  to  obey 
such  subpoena,  it  shall  be  the  duty  of  the  Judge  of  the  Supe- 
rior Court,  of  any  county,  upon  application  of  said  Commis- 
sioners, to  issue  an  attachment  for  such  witness,  and  compel 
him  to  attend  before  the  Commissioners  and  give  his  testi- 
mony upon  such  matters  as  shall  be  lawfully  required  by  such 
Commissioners,  and  said  court  shall  have  power  to  punish  for 
contempt,  as  in  other  cases  of  refusal  to  obey  the  process  and 
order  of  such  court. 

SEC.  XVI. — That  every  officer,  agent  or  employee  of  any 
railroad  company  who  shall  wilfully  neglect  or  refuse  to  make 
and  furnish  any  report  required  by  the  Commissioners,  as  neces- 


APPENDIX, 


I99 


sary  to  the  purposes  of  this  Act,  or  who  shall  wilfully  and 
unlawfully  hinder,  delay  or  obstruct  said  Commissioners  in  the 
discharge  of  the  duties  hereby  imposed  upon  them,  shall  forfeit 
and  pay  a  sum  of  not  less  than  one  hundred,  nor  more  than 
five  thousand,  dollars,  for  each  offense,  to  be  recovered  in  an 
action  of  debt  in  the  name  of  the  State. 

SEC.  XVII. — That  all  laws  militating  against  this  Act  are 
hereby  repealed. 

Extract  from  the  general  Railroad  Law  of.  Massachusetts, 
being  chapter  112  of  the  Public  Statutes. 

RIGHTS    RESERVED    BY    THE    COMMONWEALTH. 

SECT.  6. — Nothing  contained  in  this  chapter  shall  be  con- 
strued to  impair  the  rights  of  the  commonwealth  as  asserted  or 
reserved  in  previous  statutes.  The  provisions  of  this  chapter, 
and  the  franchises,  rights,  powers,  privileges,  duties,  and  liabili- 
ties of  railroad  corporations  established  under  this  or  any 
general  statute,  may  be  altered,  amended,  or  repealed,  and  the 
general  court  may  annul  or  dissolve  any  such  corporation. 

SECT.  7. — The  commonwealth  may  at  any  time  during  the 
continuance  of  the  charter  of  a  railroad  corporation,  after  the 
expiration  of  twenty  years  from  the  opening  of  its  road  for 
use,  purchase  of  the  corporation  its  road  and  all  its  franchise, 
property,  rights,  and  privileges,  by  paying  therefor  such  sum  as 
will  reimburse  to  it  the  amount  of  capital  paid  in,  with  a  net 
profit  thereon  of  ten  per  cent,  a  year  from  the  time  of  the  pay- 
ment thereof  by  the  stockholders  to  the  time  of  the  purchase. 

SECT.  8. — The  commonwealth  may  at  any  time  take  and 
possess  the  road,  franchise,  and  other  property  of  a  railroad 
corporation,  after  giving  to  it  one  year's  notice  in  writing  •  and 
shall  pay  therefor  such  compensation  as  may  be  awarded  by 
three  commissioners,  to  be  appointed  by  the  supreme  judicial 
court,  who  shall  be  sworn  to  appraise  the  same  justly  and  fairly, 
and  shall  estimate  and  determine  all  damages  sustained  by  it 


200  APPENDIX, 

by  such  taking  ;  and  a  corporation  aggrieved  by  the  determina- 
tion of  said  commissioners  may  have  its  damages  assessed  by  a 
jury  of  the  superior  court  in  the  county  of  Suffolk,  in'  the  same 
manner  as  is  provided  by  law  with  respect  to  damages  sustained 
by  reason  of  the  laying  out  of  ways  in  the  city  of  Boston. 


APPENDIX  B. 


[PUBLIC — No.  126.] 

An  Act  to  restrict  the  ownership  of  real  estate  in  the  Territories  to  Ameri- 
can citizens,  and  so  forth. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  it  shall  be 
unlawful  for  any  person  or  persons  not  citizens  of  the  United 
States  or  who  have  not  lawfully  declared  their  intention  to  be- 
come such  citizens,  or  for  any  corporation  not  created  by  or 
under  the  laws  of  the  United  States,  or  of  some  State  or 
Territory  of  the  United  States  to  hereafter  acquire,  hold, 
or  own  real  estate  so  hereafter  acquired,  or  any  interest  there- 
in, in  any  of  the  Territories  of  the  United  States  or  in  the 
District  of  Columbia,  except  such  as  may  be  acquired  by  in- 
heritance or  in  good  faith  in  the  ordinary  course  of  justice  in 
the  collection  of  debts  heretofore  created  :  Provided,  That  the 
prohibition  of  this  section  shall  not  apply  to  cases  in  which 
the  right  to  hold  or  dispose  of  lands  in  the  United  States  is 
secured  by  existing  treaties  to  the  citizens  or  subjects  of  for- 
eign countries,  which  rights,  so  far  as  they  may  exist  by  force 
of  any  such  treaty  shall  continue  to  exist  so  long  as  such 
treaties  are  in  force,  and  no  longer. 

SEC.  2.  That  no  corporation  or  association  more  than  twenty 
per  centum  of  the  stock  of  which  is  or  may  be  owned  by  any 
person  or  persons,  corporation  or  corporations,  association  or 
associations,  not  citizens  of  the  United  States,  shall  hereafter 
acquire  or  hold  or  own  any  real  estate  hereafter  acquired  in 


202  APPENDIX. 

any  of  the  Territories  of  the  United  States  or  of  the  District 
of  Columbia. 

SEC.  3.  That  no  corporation  other  than  those  organized  for 
the  construction  or  operation  of  railways,  canals,  or  turnpikes 
shall  acquire,  hold,  or  own  more  than  five  thousand  acres  of 
land  in  any  of  the  Territories  of  the  United  States  ;  and  no 
railroad,  canal,  or  turnpike  corporation  shall  hereafter  acquire, 
hold,  or  own  lands  in  any  Territory,  other  than  it  may  be  neces- 
sary for  the  proper  operation  of  its  railroad,  canal,  or  turnpike, 
except  such  lands  as  may  have  been  granted  to  it  by  act  of 
Congress.  But  the  prohibition  of  this  section  shall  not  affect 
the  title  to  any  lands  now  lawfully  held  by  any  such  corporation. 

SEC.  4.  That  all  property  acquired,  held,  or  owned  in  violation 
of  the  provisions  of  this  Act  shall  be  forfeited  to  the  United 
States,  and  it  shall  be  the  duty  of  the  Attorney-General  to  en- 
force every  such  forfeiture  by  bill  in  equity  or  other  proper 
process.  And  in  any  suit  or  proceeding  that  may  be  com- 
menced to  enforce  the  provisions  of  this  Act,  it  shall  be 
the  duty  of  the  court  to  determine  the  very  right  of  the  matter 
without  regard  to  matters  of  form,  joinder  of  parties,  multi- 
fariousness,  or  other  matters  not  affecting  the  substantial  rights 
either  of  the  United  States  or  of  the  parties  concerned  in  any 
such  proceeding  arising  out  of  the  matters  in  this  Act  men- 
tioned. 

Approved,  March  3,  1887. 


APPENDIX   C. 


THE  INTER-STATE  COMMERCE  ACT  OF 
FEBRUARY  4,  1887. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  the  pro- 
visions of  this  act  shall  apply  to  any  common  carrier  or  car- 
riers engaged  in  the  transportation  of  passengers  or  property 
wholly  by  railroad,  or  partly  by  railroad  and  partly  by  water 
when  both  are  used,  under  a  common  control,  management,  or 
arrangement,  for  a  continuous  carriage  or  shipment  from  one 
State  or  Territory  of  the  United  States,  or  the  District  of  Co- 
lumbia, to  any  other  State  or  Territory  of  the  United  States,  or 
the  District  of  Columbia,  or  from  any  place  in  the  United 
States  to  an  adjacent  foreign  country,  or  from  any  place  in  the 
United  States  through  a  foreign  country  to  any  other  place  in 
the  United  States,  and  also  to  the  transportation  in  like  man- 
ner of  property  shipped  from  any  place  in  the  United  States  to 
a  foreign  country  and  carried  from  such  place  to  a  port  of 
trans-shipment,  or  shipped  from  a  foreign  country  to  any  place 
in  the  United  States  and  carried  to  such  place  from  a  port  of 
entry  either  in  the  United  States  or  an  adjacent  foreign  coun- 
try :  Provided,  however,  That  the  provisions  of  this  act  shall 
not  apply  to  the  transportation  of  passengers  or  property,  or 
to  the  receiving,  delivering,  storage  or  handling  of  property 
wholly  within  one  State,  and  not  shipped  to  or  from  a  foreign 
country  from  or  to  any  State  or  Territory  as  aforesaid. 

The  term  "  railroad  "  as  used  in  this  act  shall  include  all 
bridges  and  ferries  used  or  operated  in  connection  with  any 

203 


204  APPENDIX. 

railroad,  and  also  all  the  road  in  use  by  any  corporation  ope- 
rating a  railroad,  whether  owned  or  operated  under  a  contract, 
agreement,  or  lease  ;  and  the  term  "  transportation  "  shall  in- 
clude all  instrumentalities  of  shipment  or  carriage. 

All  charges  made  for  any  service  rendered  or  to  be  rendered 
in  the  transportation  of  passengers  or  property  as  aforesaid,  or 
in  connection  therewith,  or  for  the  receiving,  delivering,  sto- 
rage, or  handling  of  such  property,  shall  be  reasonable  and 
just ;  and  every  unjust  and  unreasonable  charge  for  such  serv- 
ice is  prohibited  and  declared  to  be  unlawful. 

SEC.  II. — That  if  any  common  carrier,  subject  to  the  provi- 
sions of  this  act,  shall,  directly  or  indirectly,  by  any  special 
rate,  rebate,  drawback,  or  other  device,  charge,  demand,  col- 
lect or  receive  from  any  person  or  persons  a  greater  or  less 
compensation  for  any  service  rendered  or  to  be  rendered,  in 
the  transportation  of  passengers  or  property  subject  to  the 
provisions  of  this  act,  than  it  charges,  demands,  collects,  or 
receives  from  any  other  person  or  persons  for  doing  for  him 
or  them  a  like  and  contemporaneous  service  in  the  transpor- 
tation of  a  like  kind  of  traffic  under  substantially  similar  cir- 
cumstances and  conditions,  such  common  carrier  shall  be 
deemed  guilty  of  unjust  discrimination,  which  is  hereby  pro- 
hibited and  declared  to  be  unlawful. 

SEC.  III. — That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  act,  to  make  or  give  any  un- 
due or  unreasonable  preference  or  advantage  to  any  particular 
person,  company,  firm,  corporation,  or  locality,  or  any  particu- 
lar description  of  traffic,  in  any  respect  whatsoever,  or  to  sub- 
ject any  particular  person,  company,  firm,  corporation,  or 
locality  or  any  particular  description  of  traffic,  to  any  undue 
or  unreasonable  prejudice  or  disadvantage  in  any  respect 
whatsoever. 

Every  common  carrier  subject  to  the  provisions  of  this  act 
shall,  according  to  their  respective  powers,  afford  all  reason- 
able, proper,  and  equal  facilities  for  the  interchange  of  traffic 


APPENDIX.  20$ 

between  their  respective  lines,  and  for  the  receiving,  forward- 
ing, and  delivering  of  passengers  and  property  to  and  from 
their  several  lines,  and  those  connecting  therewith,  and  shall 
not  discriminate  in  their  rates  and  charges  between  such  con- 
necting lines  ;  but  this  shall  not  be  construed  as  requiring  any 
such  common  carrier  to  give  the  use  of  its  tracks  or  terminal 
facilities  to  another  carrier  engaged  in  like  business. 

SEC.  4. — That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  act  to  charge  or  receive  any 
greater  compensation  in  the  aggregate  for  the  transportation 
of  passengers  or  of  like  kind  of  property,  under  substantially 
similar  circumstances  and  conditions,  for  a  shorter  than  for  a 
longer  distance  over  the  same  line,  in  the  same  direction,  the 
shorter  being  included  within  the  longer  distance  ;  but  this 
shall  not  be  construed  as  authorizing  any  common  carrier 
within  the  terms  of  this  act  to  charge  and  receive  as  great  com- 
pensation for  a  shorter  as  for  a  longer  distance  :  Provided, 
however,  That  upon  application  to  the  Commission  appointed 
under  the  provisions  of  this  act,  such  common  carrier  may,  in 
special  cases,  after  investigation  by  the  Commission,  be  au- 
thorized to  charge  less  for  longer  than  for  shorter  distances 
for  the  transportation  of  passengers  or  property  ;  and  the 
Commission  may  from  time  to  time  prescribe  the  extent  to 
which  such  designated  common  carrier  may  be  relieved  from 
the  operation  of  this  section  of  this  act. 

SEC.  V. — That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  act  to  enter  into  any  contract, 
agreement,  or  combination  with  any  other  common  carrier  or 
carriers  for  the  pooling  of  freights  of  different  and  competing 
railroads,  or  to  divide  between  them  the  aggregate  or  net 
proceeds  of  the  earnings  of  such  railroads,  or  any  portion 
thereof  ;  and  in  any  case  of  an  agreement  for  the  pooling  cf 
freights  as  aforesaid,  each  day  of  its  continuance  shall  be 
deemed  a  separate  offence. 

SEC.  VI, — That  every  common  carrier  subject  to  the  provi- 


2C>6  APPENDIX. 

sions  of  this  act  shall  print  and  keep  for  public  inspection 
schedules  showing  the  rates  and  fares  and  charges  for  the 
transportation  of  passengers  and  property  which  any  such 
common  carrier  has  established  and  which  are  in  force  at  the 
time  upon  its  railroad,  as  denned  by  the  first  section  of  this 
act.  The  schedules  printed  as  aforesaid  by  any  such  common 
carrier  shall  plainly  state  the  places  upon  its  railroad  between 
which  property  and  passengers  will  be  carried,  and  shall  con- 
tain the  classification  of  freight  in  force  upon  such  railroad, 
and  shall  also  state  separately  the  terminal  charges  and  any 
rules  or  regulations  which  in  any  wise  change,  affect,  or  de- 
termine any  part  of  the  aggregate  of  such  aforesaid  rates  and 
fares  and  charges.  Such  schedules  shall  be  plainly  printed  in 
large  type,  of  at  least  the  size  of  ordinary  pica,  and  copies  for 
the  use  of  the  public  shall  be  kept  in  every  depot  or  station 
upon  any  such  railroad,  in  such  places  and  in  such  form  that 
they  can  be  conveniently  inspected. 

Any  common  carrier  subject  to  the  provisions  of  this  act 
receiving  freight  in  the  United  States  to  be  carried  through  a 
foreign  country  to  any  place  in  the  United  States,  shall  also 
in  like  manner  print  and  keep  for  public  inspection,  at  every 
depot  where  such  freight  is  received  for  shipment,  schedules 
showing  the  through  rates  established  and  charged  by  such 
common  carrier  to  all  points  in  the  United  States  beyond  the 
foreign  country  to  which  it  accepts  freight  for  shipment  ;  and 
any  freight  shipped  from  the  United  States  through  a  foreign 
country  into  the  United  States,  the  through  rate  on  which 
shall  not  have  been  made  public  as  required  by  this  act,  shall, 
before  it  is  admitted  into  the  United  States  from  said  foreign 
country,  be  subject  to  customs  duties,  as  if  said  freight  were 
of  foreign  production  ;  and  any  law  in  conflict  with  this  sec- 
tion is  hereby  repealed. 

No  advance  shall  be  made  in  the  rates,  fares,  and  charges 
which  have  been  established  and  published  as  aforesaid  by  any 
common  carrier,  in  compliance  with  the  requirements  of  this 


APPENDIX.  SO/ 

section,  except  after  ten  days'  public  notice,  which  shall 
plainly  state  the  changes  proposed  to  be  made  in  the  schedule 
then  in  force,  and  the  time  when  the  increased  rates,  fares,  or 
charges  will  go  into  effect  ;  and  the  proposed  changes  shall  be 
shown  by  printing  new  schedules,  or  shall  be  plainly  indi- 
cated upon  the  schedules  in  force  at  the  time  and  kept  for  pub- 
lic inspection.  Reductions  in  such  published  rates,  fares,  or 
charges  may  be  made  without  previous  public  notice  ;  but 
whenever  any  such  reduction  is  made,  notice  of  the  same  shall 
immediately  be  publicly  posted,  and  the  changes  made  shall 
immediately  be  made  public  by  printing  new  schedules,  or 
shall  immediately  be  plainly  indicated  upon  the  schedules 
at  the  time  in  force  and  kept  for  public  inspection. 

And  when  any  such  common  carrier  shall  have  established 
and  published  its  rates,  fares,  and  charges,  in  compliance  with 
the  provisions  of  this  section,  it  shall  be  unlawful  for  such 
common  carrier  to  charge,  demand,  collect,  or  receive  from 
any  person  or  persons  a  greater  or  less  compensation  for  the 
transportation  of  passengers  or  property,  or  from  any  services 
in  connection  therewith  than  is  specified  in  such  published 
schedule  of  rates,  fares,  and  charges  as  may  at  the  time  be  in 
force. 

Every  common  carrier  subject  to  the  provisions  of  this 
act  shall  file  with  the  Commission  hereinafter  provided  for 
copies  of  its  schedules  of  rates,  fares,  and  charges  which  have 
been  established  and  published  in  compliance  with  the  re- 
quirements of  this  section,  and  shall  promptly  notify  said 
Commission  of  all  changes  made  in  the  same.  Every  such- 
common  carrier  shall  also  file  with  said  Commission  copies 
of  all  contracts,  agreements,  or  arrangements  with  other 
common  carriers  in  relation  to  any  traffic  affected  by  the  pro- 
visions of  this  act  to  which  it  may  be  a  party.  And  in  cases 
where  passengers  and  freight  pass  over  continuous  lines  or 
routes  operated  by  more  than  one  common  carrier,  and  the 
several  common  carriers  operating  such  lines  or  routes  estab- 


208  APPENDIX* 

lish  joint  tariffs  of  rates,  or  fares,  or  charges  for  such  continu- 
ous lines  or  routes,  copies  of  such  joint  tariffs  shall  also,  in 
like  manner,  be  filed  with  said  Commission.  Such  joint  rates, 
fares,  and  charges  on  such  continuous  lines  so  filed  as  afore- 
said shall  be  made  public  by  such  common  carriers  when 
directed  by  said  Commission,  in  so  far  as  may,  in  the  judg- 
ment of  the  Commission,  be  deemed  practicable  ;  and  said 
Commission  shall,  from  time  to  time,  prescribe  the  measure 
of  publicity  which  shall  be  given  to  such  rates,  fares,  and 
charges,  or  to  such  part  of  them  as  it  may  deem  it  practica- 
ble for  such  common  carriers  to  publish,  and  the  places  in 
which  they  shall  be  published  ;-  but  no  common  carrier  party 
to  any  such  joint  tariff  shall  be  liable  for  the  failure  of  any 
other  common  carrier  party  thereto  to  observe  and  adhere  to 
the  rates,  fares,  or  charges  thus  made. and  published. 

If  any  such  common  carrier  shall  neglect  or  refuse  to  file 
or  publish  its  schedules  or  tariffs  of  rates,  fares,  and  charges 
as  provided  in  this  section,  or  any  part  of  the  same,  such 
common  carrier  shall,  in  addition  to  other  penalties  herein 
prescribed,  be  subject  to  a  writ  of  mandamus,  to  be  issued 
by  any  circuit  court  of  the  United  States  in  the  judicial  dis- 
trict wherein  the  principal  office  of  said  common  carrier  is 
situated  or  wherein  such  offence  may  be  committed,  and  if 
such  common  carrier  be  a  foreign  corporation,  in  the  judi- 
cial circuit  wherein  such  common  carrier  accepts  traffic  and 
has  an  agent  to  perform  such  service,  to  compel  compliance 
with  the  aforesaid  provisions  of  this  section  ;  and  such  writ 
shall  issue  in  the  name  of  the  people  of  the  United  States,  at 
the  relation  of  the  Commissioners  appointed  under  the  provi- 
sions of  this  act  ;  and  failure  to  comply  with  its  requirements 
shall  be  punishable  as  and  for  a  contempt ;  and  the  said  Com- 
missioners, as  complainants,  may  also  apply,  in  any  such  Circuit 
court  of  the  United  States,  for  a  writ  of  injunction  against 
such  common  carrier,  to  restrain  such  common  carrier  from 
receiving  or  transporting  property  among  the  several  States 


APPENDIX.  209 

and  Territories  of  the  United  States,  or  between  the  United 
States  and  adjacent  foreign  countries,  or  between  the  ports  of 
trans-shipment  and  of  entry  and  the  several  States  and  Terri- 
tories of  the  United  States,  as  mentioned  in  the  first  section  of 
this  act,  until  such  common  carrier  shall  have  complied  with 
the  aforesaid  provisions  of  this  section  of  this  act. 

SEC.  VII. — That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  Act  to  enter  into  any  combi- 
nation, contract,  or  agreement,  expressed  or  implied,  to  pre- 
vent by  change  of  time  schedule,  carriage  in  different  cars,  or 
by  other  means  or  devices,  the  carriage  of  freights  from  be- 
ing continuous  from  the  place  of  shipment  to  the  place  of 
destination  ;  and  no  break  of  bulk,  stoppage,  or  interruption 
made  by  such  common  carrier  shall,  prevent  the  carriage  of 
freights  from  being  and  being  treated  as  one  continuous  car- 
riage from  the  place  of  shipment  to  the  place  of  destination, 
unless  such  break,  or  stoppage,  or  interruption  was  made  in 
good  faith  for  some  necessary  purpose,  and  without  any  in- 
tent to  avoid  or  unnecessarily  interrupt  such  continuous  car- 
riage or  to  evade  any  of  the  provisions  of  this  act. 

SEC.  VIII. — That  in  case  any  common  carrier  subject  to  the 
provisions  of  this  act  shall  do,  cause  to  be  done,  or  permit 
to  be  done  any  act,  matter,  or  thing  in  this  act  prohibited  or 
declared  to  be  unlawful,  or  shall  omit  to  do  any  act,  matter, 
or  thing  in  this  act  required  to  be  done,  such  common  carrier 
shall  be  liable  to  the  person  or  persons  injured  thereby  for 
the  full  amount  of  damages  sustained  in  consequence  of  any 
such  violation  of  the  provisions  of  this  act  together  with  a 
reasonable  counsel  or  attorney's  fee  to  be  fixed  by  the  court 
in  every  case  of  recovery,  which  attorney's  fees  shall  be  taxed 
and  collected  as  part  of  the  costs  in  the  case. 

SEC.  IX. — That  any  person  or  persons  claiming  to  be  dam- 
aged by  any  common  carrier  subject  to  the  provisions  of  this 
act,  may  either  make  complaint  to  the  Commission  as  herein- 
after provided  for,  or  may  bring  suit  in  his  or  their  own  behalf 


210  APPENbtX. 

for  the  recovery  of  the  damages  for  which  such  commoii  carrier 
may  be  liable  under  the  provisions  of  this  act  in  any  district  or 
circuit  court  of  the  United  States  of  competent  jurisdiction  ; 
but  such  person  or  persons  shall  not  have  the  right  to  pursue 
both  of  said  remedies,  and  must  in  each  case  elect  which  one 
of  the  two  methods  of  procedure  herein  provided  for  he  or 
they  will  adopt.  In  any  such  action  brought  for  the  recovery 
of  damages,  the  court  before  which  the  same  shall  be  pending 
may  compel  any  director,  officer,  receiver,  trustee,  or  agent  of 
the  corporation  or  company  defendant  in  such  suit  to  attend, 
appear,  and  testify  in  such  case,  and  may  compel  the  produc- 
tion of  the  books  and  papers  of  such  corporation  or  company 
party  to  any  such  suit ;  the  claim  that  any  such  testimony  or 
evidence  may  tend  to  criminate  the  person  giving  such  evi- 
dence shall  not  excuse  such  witness  from  testifying,  but  such 
evidence  or  testimony  shall  not  be  used  against  such  person  on 
the  trial  of  any  criminal  proceeding. 

SEC.  X. — That  any  common  carrier  subject  to  the  provisions 
of  this  act,  or  whenever  such  common  carrier  is  a  corporation, 
any  director  or  officer  thereof,  or  any  receiver,  trustee,  lessee, 
agent,  or  person  acting  for  or  employed  by  such  corporation, 
who,  alone  or  with  any  other  corporation,  company,  person  or 
party,  shall  wilfully  do  or  cause  to  be  done,  or  shall  willingly 
suffer  or  permit  to  be  done,  any  act,  matter,  or  thing  in  this 
act  prohibited  or  declared  to  be  unlawful,  or  who  shall  aid  or 
abet  therein,  or  shall  wilfully  omit  or  fail  to  do  any  act,  matter, 
or  thing  in  this  act  required  to  be  done,  or  shall  cause  or  wil- 
lingly suffer  any  act,  matter,  or  thing  so  directed  or  required 
by  this  act  to  be  done  not  to  be  so  done,  or  shall  aid  or  abet 
any  such  omission  or  failure,  or  shall  be  guilty  of  any  infrac- 
tion of  this  act,  or  shall  aid  or  abet  therein,  shall  be  deemed 
guilty  of  a  misdemeanor,  and  shall,  upon  conviction  thereof  in 
any  district  court  of  the  United  States  within  the  jurisdiction 
of  which  such  offence  was  committed,  be  subject  -to  a  fine  of 
not  to  exceed  five  thousand  dollars  for  each  offence. 


APPENDIX.  211 

SEC.  XI. — That  a  Commission  is  hereby  created  and  estab- 
lished to  be  known  as  the  Inter-State  Commerce  Commission, 
which  shall  be  composed  of  five  Commissioners,  who  shall  be 
appointed  by  the  President,  by  and  with  the  advice  and  con- 
sent of  the  Senate.  The  Commissioners  first  appointed  under 
this  act  shall  continue  in  office  for  the  term  of  two,  three,  four, 
five,  and  six  years  respectively,  from  the  first  day  of  January, 
Anno  Domini  eighteen  hundred  and  eighty-seven,  the  term  of 
each  to  be  designated  by  the  President  ;  but  their  successors 
shall  be  appointed  for  terms  of  six  years,  except  that  any  per- 
son chosen  to  fill  a  vacancy  shall  be  appointed  only  for  the  un- 
expired  time  of  the  Commissioner  whom  he  shall  succeed. 
Any  Commissioner  may  be  removed  by  the  President  for  in- 
efficiency, neglect  of  duty,  or  malfeasance  in  office.  Not  more 
than  three  of  the  Commissioners  shall  be  appointed  from  the 
same  political  party.  No  person  in  the  employ  of  or  holding 
any  official  relation  to  any  common  carrier  subject  to  the  pro- 
visions of  this  act,  or  owning  stock  or  bonds  thereof,  or  who 
is  in  any  manner  pecuniarily  interested  therein,  shall  enter 
upon  the  duties  of  or  hold  such  office.  Said  Commissioners 
shall  not  engage  in  any  other  business,  vocation,  or  employ- 
ment. No  vacancy  in  the  Commission  shall  impair  the  right 
of  the  remaining  Commissioners  to  exercise  all  the  powers  of 
the  Commission. 

SEC.  XII. — That  the  Commission  hereby  created  shall  have 
authority  to  inquire  into  the  management  of  the  business  of 
all  common  carriers  subject  to  the  provisions  of  this  act, 
and  shall  keep  itself  informed  as  to  the  manner  and  method 
in  which  the  same  is  conducted,  and  shall  have  the  right  to 
obtain  from  such  common  carriers  full  and  complete  informa- 
tion necessary  to  enable  the  Commission  to  perform  the  duties 
and  carry  out  the  objects  for  which  it  was  created  ;  and  for  the 
purposes  of  this  act  the  Commission  shall  have  power  to  re- 
quire the  attendance  and  testimony  of  witnesses,  and  the  pro- 
duction of  all  books,  papers,  tariffs,  contracts,  agreements,  and 


212     '  APPENDIX. 

documents  relating  to  any  matter  under  investigation,  and  to 
that  end  may  invoke  the  aid  of  any  court  of  the  United  States 
in  requiring  the  attendance  and  testimony  of  witnesses  and  the 
production  of  books,  papers,  and  documents  under  the  provi- 
sions of  this  section. 

And  any  of  the  circuit  courts  of  the  United  States  within 
the  jurisdiction  of  which  such  inquiry  is  carried  on  may,  in 
case  of  contumacy  or  refusal  to  obey  a  subpoena  issued  to  any 
common  carrier  subject  to  the  provisions  of  this  act,  or  other 
person,  issue  an  order  requiring  such  common  carrier  or  other 
person  to  appear  before  said  Commission  (and  produce  books 
and  papers  if  so  ordered)  and  give  evidence  touching  the  mat- 
ter in  question  ;  and  any  failure  to  obey  such  order  of  the 
court  may  be  punished  by  such  court  as  a  contempt  thereof. 
The  claim  that  any  such  testimony  or  evidence  may  tend  to 
criminate  the  person  giving  such  evidence  shall  not  excuse 
such  witness  from  testifying,  but  such  evidence  or  testimony 
shall  not  be  used  against  such  person  on  the  trial  of^any  crimi- 
nal proceeding. 

SEC.  XIII. — That  any  person,  firm,  corporation,  or  associa- 
tion, or  any  mercantile,  agricultural,  or  manufacturing  society, 
or  any  body  politic  or  municipal  organization  complaining  of 
any  thing  done  or  omitted  to  be  done  by  any  common  carrier 
subject  to  the  provisions  of  this  act  in  contravention  of  the 
provisions  thereof,  may  apply  to  said  Commission  by  petition, 
which  shall  briefly  state  the  facts  ;  whereupon  a  statement  of 
the  charges  thus  made  shall  be  forwarded  by  the  Commission 
to  such  common  carrier,  who  shall  be  called  upon  to  satisfy 
the  complaint  or  to  answer  the  same  in  writing  within  a  reason- 
able time,  to  be  specified  by  the  Commission.  If  such  common 
carrier,  within  the  time  specified,  shall  make  reparation  for  the 
injury  alleged  to  have  been  done,  said  carrier  shall  be  relieved 
of  liability  to  the  complaint  only  for  the  particular  violation  of 
law  thus  complained  of.  If  such  carrier  shall  not  satisfy  the 
complaint  within  the  time  specified,  or  there  shall  appear  to  be 


APPENDIX.  213 

any  reasonable  ground  for  investigating  said  complaint,  it  shall 
be  the  duty  of  the  Commission  to  investigate  the  matters  com- 
plained of  in  such  manner  and  by  such  means  as  it  shall  deem 
proper. 

Said  Commission  shall  in  like  manner  investigate  any  com- 
plaint forwarded  by  the  railroad  commissioner  or  railroad 
commission  of  any  State  or  Territory,  at  the  request  of  such 
commissioner  or  commission,  and  may  institute  any  inquiry 
on  its  own  motion  in  the  same  manner  and  to  the  same  effect 
as  though  complaint  had  been  made. 

No  complaint  shall  at  any  time  be  dismissed  because  of  the 
absence  of  direct  damage  to  the  complainant. 

SEC.  XIV. — That  whenever  an  investigation  shall  be  made 
by  said  Commission,  it  shall  be  its  duty  to  make  a  report  in 
writing  in  respect  thereto,  which  shall  include  the  findings  of 
fact  upon  which  the  conclusions  of  the  Commission  are  based, 
together  with  its  recommendation  as  to  what  reparation,  if  any, 
should  be  made  by  the  common  carrier,  to  any  party  or  parties 
who  may  be  found  to  have  been  injured  ;  and  such  findings  so 
made  shall  thereafter,  in  all  judicial  proceedings,  be  deemed 
primd  facie  evidence  as  to  each  and  every  fact  found. 

All  reports  of  investigations  made  by  the  Commission  shall 
be  entered  of  record,  and  a  copy  thereof  shall  be  furnished  to 
the  party  who  may  have  complained,  and  to  any  common  car- 
rier that  may  have  been  complained  of 

SEC.  XV. — That  if  in  any  case  in  which  an  investigation 
shall  be  made  by  said  Commission  it  shall  be  made  to  appear 
to  the  satisfaction  of  the  Commission,  either  by  the  testimony 
of  witnesses  or  other  evidence,  that  any  thing  has  been  done 
or  omitted  to  be  done  in  violation  of  the  provisions  of  this  act 
or  of  any  law  cognizable  by  said  Commission,  by  any  common 
carrier,  or  that  any  injury  or  damage  has  been  sustained  by  the 
party  or  parties  complaining  or  by  other  parties  aggrieved  in 
consequence  of  any  such  violation,  it  shall  be  the  duty  of  the 
Commission  to  forthwith  cause  a  copy  of  its  report  in  respect 


214  APPENDIX. 

thereto  to  be  delivered  to  such  common  carrier,  together  with 
a  notice  to  said  common  carrier  to  cease  and  desist  from  such 
violation,  or  to  make  reparation  for  the  injury  so  found  to  have 
been  done,  or  both,  within  a  reasonable  time,  to  be  specified 
by  the  Commission  ;  and  if,  within  the  time  specified,  it  shall 
be  made  to  appear  to  the  Commission  that  such  common  car- 
rier has  ceased  from  such  violation  of  law,  and  has  made  repa- 
ration for  the  injury  found  to  have  been  done,  in  compliance 
with  the  report  and  notice  of  the  Commission,  or  to  the  satis- 
faction of  the  party  complaining,  a  statement  to  that  effect 
shall  be  entered  of  record  by  the  Commission,  and  the  said 
common  carrier  shall  thereupon  be  relieved  from  further 
liability  or  penalty  for  such  particular  violation  of  law. 

SEC.  XVI. — That  whenever  any  common  carrier,  as  defined 
in  and  subject  to  the  provisions  of  this  act,  shall  violate  or  re- 
fuse or  neglect  to  obey  any  lawful  order  or  requirement  of  the 
Commission  in  this  act  named,  it  shall  be  the  duty  of  the  Com- 
mission, and  lawful  for  any  company  or  person  interested  in 
such  order  or  requirement,  to  apply,  in  a  summary  way,  by 
petition,  to  the  circuit  court  of  the  United  States,  sitting  in 
equity  in  the  judicial  district  in  which  the  common  carrier 
complained  of  has  its  principal  office,  or  in  which  the  violation 
or  disobedience  of  such  order  or  requirement  shall  happen, 
alleging  such  violation  or  disobedience  as  the  case  may  be  ; 
and  the  said  court  shall  have  power  to  hear  and  determine  the 
matter,  on  such  short  notice  to  the  common  carrier  complained 
of  as  the  court  shall  deem  reasonable  ;  and  such  notice  may  be 
served  on  such  common  carrier,  his  or  its  officers,  agents  or 
servants,  in  such  manner  as  the  court  shall  direct ;  and  said 
court  shall  proceed  to  hear  and  determine  the  matter  speedily 
as  a  court  of  equity,  and  without  the  formal  pleadings  and 
proceedings  applicable  to  ordinary  suits  in  equity,  but  in  such 
manner  as  to  do  justice  in  the  premises  ;  and  to  this  end  such 
court  shall  have  power,  if  it  think  fit,  to  direct  and  prosecute, 
in  such  mode  and  by  such  persons  as  it  may  appoint,  all  such 


APPENDIX.  21$ 

inquiries  as  the  court  may  think  needful  to  enable  it  to  form  a 
just  judgment  in  the  matter  of  such  petition  ;  and  on  such 
hearing  the  report  of  said  Commission  shall  be  primd  facie  evi- 
dence of  the  matters  therein  stated ;  and  if  it  be  made  to  appear 
to  such  court,  on  such  hearing  or  on  report  of  any  such  person 
or  persons,  that  the  lawful  order  or  requirement  of  said  Com- 
mission drawn  in  question  has  been  violated  or  disobeyed,  it 
shall  be  lawful  for  such  court  to  issue  a  writ  of  injunction  or 
other  proper  process,  mandatory  or  otherwise,  to  restrain  such 
common  carrier  from  further  continuing  such  violation  or  dis- 
obedience of  such  order  or  requirement  of  said  Commission, 
and  enjoining  obedience  to  the  same  ;  and  in  case  of  any  dis- 
obedience of  any  such  writ  of  injunction  or  other  proper  pro- 
cess, mandatory  or  otherwise,  against  such  common  carrier, 
and  if  a  corporation,  against  one  or  more  of  the  directors, 
officers,  or  agents,  of  the  same,  or  against  any  owner,  lessee, 
trustee,  receiver,  or  other  person  failing  to  obey  such  writ  of 
injunction  or  other  proper  process,  mandatory  or  otherwise  ; 
and  said  court  may,  if  it  shall  think  fit,  make  an  order  direct- 
ing such  common  carrier  or  other  person  so  disobeying  such 
writ  of  injunction  or  other  proper  process,  mandatory  or  other- 
wise, to  pay  such  sum  of  money  not  exceeding  for  each  carrier 
or  person  in  default  the  sum  of  five  hundred  dollars  a  day  for 
every  day  after  a  day  to  be  named  in  the  order  that  such  car- 
rier or  other  person  shall  fail  to  obey  such  injunction  or  other 
proper  process,  mandatory  or  otherwise,  and  such  moneys 
shall  be  payable  as  the  court  shall  direct,  either  to  the  party 
complaining,  or  into  court  to  abide  the  ultimate  decision  of  the 
court,  or  into  the  Treasury  ;  and  payment  thereof  may,  without 
prejudice  to  any  other  mode  of  recovering  the  same,  be  enforced 
by  attachment  or  order  in  the  nature  of  a  writ  of  execution,  in 
like  manner  as  if  the  same  had  been  recovered  by  a  final  decree 
inpersonam  in  such  court.  When  the  subject  in  dispute  shall 
be  of  the  value  of  two  thousand  dollars  or  more,  either  party 
to  such  proceeding  before  said  court  may  appeal  to  the  Supreme 


2l6  APPENDIX. 

Court  of  the  United  States,  under  the  same  regulations  now 
provided  by  law  in  respect  of  security  for  such  appeal,  but 
such  appeal  shall  not  operate  to  stay  or  supersede  the  order  of 
the  court  or  the  execution  of  any  writ  or  process  thereon  ;  and 
such  court  may  in  every  such  matter  order  the  payment  of 
such  costs  and  counsel  fees  as  shall  be  deemed  reasonable. 
Whenever  any  such  petition  shall  be  filed  or  presented  by  the 
Commission  it  shall  be  the  duty  of  the  District  Attorney,  under 
the  direction  of  the  Attorney-General  of  the  United  States,  to 
prosecute  the  same  ;  and  the  costs  and  expenses  of  such  pros- 
ecution shall  be  paid  out  of  the  appropriations  for  the  expenses 
of  the  courts  of  the  United  States.  For  the  purposes  of  this 
act,  excepting  its  penal  provisions,  the  circuit  courts  of  the 
United  States  shall  be  deemed  to  be  always  in  session. 

SEC.  XVII.  That  the  Commission  may  conduct  its  proceed- 
ings in  such  manner  as  will  best  conduce  to  the  proper  dispatch 
of  business  and  to  the  ends  of  justice,  a  majority  of  the  Commis- 
sion shall  constitute  a  quorum  for  the  transaction  of  business  ; 
but  no  Commissioner  shall  participate  in  any  hearing  or  pro- 
ceeding in  which  he  has  any  pecuniary  interest.  Said  Com- 
mission may,  from  time  to  time,  make  or  amend  such  general 
rules  or  orders  as  may  be  requisite  for  the  order  and  regula- 
tion of  proceedings  before  it,  including  forms  of  notices  and 
the  service  thereof,  which  shall  conform,  as  nearly  as  may  be, 
to  those  in  use  in  the  courts  of  the  United  States.  Any  party 
may  appear  before  said  Commission  and  be  heard,  in  person 
or  by  attorney.  Every  vote  and  official  act  of  the  Commission 
shall  be  entered  of  record,  and  its  proceedings  shall  be  public 
upon  the  request  of  either  party  interested.  Said  Commission 
shall  have  an  official  seal,  which  shall  be  judicially  noticed. 
Either  of  the  members  of  the  Commission  may  administer 
oaths  and  affirmations. 

SEC.  XVIII.  That  each  Commissioner  shall  receive  an  an- 
nual salary  of  seven  thousand  five  hundred  dollars,  payable  in 
the  same  manner  as  the  salaries  of  judges  of  the  courts  of  the 


APPENDIX.  217 

United  States.  The  Commission  shall  appoint  a  Secretary, 
who  shall  receive  an  annual  salary  of  three  thousand  five  hun- 
dred dollars,  payable  in  like  manner.  The  Commission  shall 
have  authority  to  employ  and  fix  the  compensation  of  such 
other  employes  as  it  may  find  necessary  to  the  proper  per- 
formance of  its  duties,  subject  to  the  approval  of  the  Secretary 
of  the  Interior. 

The  Commission  shall  be  furnished  by  the  Secretary  of  the 
Interior  with  suitable  offices  and  all  necessary  office  supplies. 
Witnesses  summoned  before  the  Commission  shall  be  paid  the 
same  fees  and  mileage  that  are  paid  witnesses  in  the  courts  of 
the  United  States.  All  of  the  expenses  of  the  Commission, 
including  all  necessary  expenses  for  transportation  incurred 
by  the  Commissioners,  or  by  their  employes  under  their  orders, 
in  making  any  investigation,  in  any  other  places  than  in  the 
city  of  Washington,  shall  be  allowed  and  paid,  on  the 
presentation  of  itemized  vouchers  therefor  approved  by  the 
Chairman  of  the  Commission  and  the  Secretary  of  the 
Interior. 

SEC.  XIX.  That  the  principal  office  of  the  Commission  shall 
be  in  the  city  of  Washington,  where  its  general  sessions  shall 
be  held ;  but,  whenever  the  convenience  of  the  public  or  of 
the  parties  may  be  promoted,  or  delay  or  expense  prevented 
thereby,  the  Commission  may  hold  special  sessions  in  any 
part  of  the  United  States.  It  may,  by  one  or  more  of  the 
Commissioners,  prosecute  any  inquiry  necessary  to  its  duties, 
in  any  part  of  the  United  States,  into  any  matter  or  question 
of  the  fact  pertaining  to  the  business  of  any  common  carrier 
subject  to  the  provisions  of  this  act. 

SEC.  XX.  That  the  Commission  is  hereby  authorized  to  re- 
quire annual  reports  from  all  common  carriers  subject  to  the 
provisions  of  this  act,  to  fix  the  time  and  prescribe  the  man- 
ner in  which  such  reports  shall  be  made,  and  to  require  from 
such  carriers  specific  answers  to  all  questions  upon  which  the 
Commission  may  need  information.  Such  annual  reports 


21 8  APPENDIX. 

shall  show  in  detail  the  amount  of  capital  stock  issued,  the 
amounts  paid  therefor,  and  the  manner  of  payment  for  the 
same  ;  the  dividends  paid,  the  surplus  fund,  if  any,  and  the 
number  of  stockholders  ;  the  funded  and  floating  debts,  and 
the  interest  paid  thereon  ;  the  cost  and  value  of  the  carrier's 
property,  franchises,  and  equipment ;  the  number  of  em- 
ployes and  the  salaries  paid  each  class  ;  the  amounts  expended 
for  improvements  each  year,  how  expended,  and  the  character 
of  such  improvements ;  the  earnings  and  receipts  from 
each  branch  of  business  and  from  all  sources  ;  the  operating 
and  other  expenses  ;  the  balances  of  profit  and  loss  ;  and  a 
complete  exhibit  of  the  financial  operations  of  the  carrier 
each  year,  including  an  annual  balance-sheet.  Such  reports 
shall  also  contain  such  information  in  relation  to  rates  or 
regulations  concerning  fares  or  freights,  or  agreements,  ar- 
rangements, or  contracts  with  other  common  carriers  as  the 
Commission  may  require ;  and  the  said  Commission  may, 
within  its  discretion,  for  the  purpose  of  enabling  it  the  better 
to  carry  out  the  purposes  of  this  act,  prescribe  (if  in  the 
opinion  of  the  Commission  it  is  practicable  to  prescribe  such 
uniformity  and  methods  of  keeping  accounts)  a  period  of  time 
within  which  all  common  carriers  subject  to  the  provisions 
of  this  act  shall  have,  as  near  may  be,  a  uniform  system  of  ac- 
counts, and  the  manner  in  which  such  accounts  shall  be  kept. 
SEC.  XXI.  That  the  Commission  shall,  on  or  before  the  first 
day  of  December  in  each  year,  make  a  report  to  the  Secretary 
of  the  Interior,  which  shall  be  by  him  transmitted  to  Con- 
gress, and  copies  of  which  shall  be  distributed  as  are  the 
other  reports  issued  from  the  Interior  Department.  This 
report  shall  contain  such  information  and  data  collected  by 
the  Commission  as  may  be  considered  of  value  in  the  deter- 
mination of  questions  connected  with  the  regulation  of  com- 
merce, together  with  such  recommendations  as  to  additional 
legislation  relating  thereto  as  the  Commission  may  deem 
necessary. 


APPENDIX.  219 

SEC.  XXII.  That  nothing  in  this  act  shall  apply  to  the  car- 
riage, storage,  or  handling  of  property  free  or  at  reduced  rates 
for  the  United  States,  State,or  municipal  governments,  or  for 
charitable  purposes,  or  to  or  from  fairs  and  expositions  for 
exhibition  thereat,  or  the  issuance  of  mileage,  excursion,  or 
commutation  passenger  tickets  ;  nothing  in  this  act  shall  be 
construed  to  prohibit  any  common  carrier  from  giving  re- 
duced rates  to  ministers  of  religion  ;  nothing  in  this  act  shall 
be  construed  to  prevent  railroads  from  giving  free  carriage 
to  their  own  officers  and  employe's,  or  to  prevent  the  principal 
officers  of  any  railroad  company  or  companies  from  exchan- 
ging passes  or  tickets  with  other  railroad  companies  for  their 
officers  or  employes  ;  and  nothing  in  this  act  contained  shall 
in  any  way  abridge  or  alter  the  remedies  now  existing  at  com- 
mon law  or  by  statute,  but  the  provisions  of  this  act  are 
in  addition  to  such  remedies  :  Provided,  That  no  pending 
litigation  shall  in  any  way  be  affected  by  this  act. 

SEC.  XXIII.  That  the  sum  of  one  hundred  thousand  dollars 
is  hereby  appropriated  for  the  use  and  purposes  of  this  act  for 
the  fiscal  year  ending  June  thirtieth,  Anno  Domini  eighteen 
hundred  and  eighty-eight,  and  the  intervening  time  anterior 
thereto. 

SEC.  XXIV.  That  the  provisions  of  sections  eleven  and  eigh- 
teen of  this  act,  relating  to  the  appointment  and  organization  of 
the  Commission  herein  provided  for,  shall  take  effect  imme- 
diately, and  the  remaining  provisions  of  this  act  shall  take 
effect  sixty  days  after  its  passage. 

Approved  February  4,  1887. 


INDEX. 


Absorption  of  parallel  lines,   terms 

of,  62 
Acquisition  by  railroad  company  of 

stock  of  other  railroad,  restriction 

on,  158 
Adams,  C.  F.,  Jr.,  Railroads,  their 

Origin  and  Problems,  Preface  and 

126 
Agents  and  public  officers  of  States 

liable  to  be  sued,  147,  148 
American  institutions,  I,  13 
American   protectionists,  views   of, 

23-25 

American  securities,  7,  8  ;  compara- 
tive safety  of,  7,  8  ;  amount  of 
railroad  capital  invested  in,  9,  10 

Artisans,  English,  15,  16  ;  German, 
16  ;  Belgian,  16 

Assessments  of  stockholders,  67,  68 

Assumption  of  railways  by  Govern- 
ment, 124,  125  ;  advantages  and 
drawbacks  incident  to,  124,  125 

Basis  of  compensation  to  corpora- 
tions for  railroads  assumed  by 
government,  125 

Basis  of  mileage,  53 

Birmingham  caucus,  22 

Blanket  mortgages,  68,  69 

Central  and  subordinate  Boards,  re- 
lation between,  40-43  ;  directors 
of,  40-43 

Charter,  forfeiture  of,  34 

Chartered  rights,  modification  of 
legislative  not  ministerial  act,  107 

Collateral  assets,  valuation  of,   88- 

Coloured  labour  in  the  South,  139, 
140  ;  its  relative  compensation  and 
value,  140,  141 


Combination,  current  objections  to, 
44  ;  economies  derivable  from,  45- 
47  ;  Southern  lines  (London),  an 
illustration  of,  47  ;  as  an  escape 
from  insolvency,  54 

Commercial  supremacy,  internation- 
al race  for,  17,  18  ;  nations  handi- 
capped in,  18  ;  economically,  18  ; 
politically,  18,  19 ;  socially,  20-22 

Commission  to  assess  value  of  rail- 
roads assumed  by  State,  167 

Communism,  growth  of,  20  ;  power 
of  resistance  to,  20,  21 

Competitive  points,  52 

Compulsory  purchase  by  State  (Mas- 
sachusetts), 167,  168 

Concessions  in  foreign  countries,  30 

Constructing  Boards,  representation 
of  investors  on,  31 

Construction  of  Statutes  by  Federal 
Court,  147 

Contract  between  State  and  char- 
tered railroads,  nature  and  scope 
of,  96-100 

Contract,  impairment  of,   145—151 

Contracts  intended  to  lessen  compe- 
tition, 158 

Control,  29 ;  relation  of  to  Wall 
street  vocabulary,  29  ;  definition 
of  one  aspect  of,  32 

Convertible  bonds,  71 

Corners,  risks  incident  to,  83,  84 

Cost  of  service,  53 

Cumulative  remedies,  164-166 

Debts  incurred  in  aid  of  rebellion 

invalid,  143 

De  Laveleye,  M.  E.,  21 
Demagogues  in  the  South,  136,  137 
Discrimination    and    extortion,    96, 

161 


231 


222 


INDEX. 


Dividends,  105-108  ;  restriction  of 
in  advance,  105-108  ;  hardship  on 
investor  arising  from,  106,  107  ; 
alienation  of  foreign  capital  caused 
by,  107  ;  stability  of  securities,  107 

Divorce  between  ownership  and 
voting  .power,  70 

Dry-nursing  by  State,  26,  104 

Eminent  domain,  100,  108 

English  Free-Trader,  views  of,  25  ; 
inapplicable  in  America,  25 

English  institutions,  I,  3  ;  changes 
of  opinion  concerning,  i,  3 

English  securities,  27  ;  houses, 
ground  rents,  etc.,  27  ;  residen- 
tial property  and  sporting  rights, 
27,  28 

Erie  classification  Act,  70 

Europe,  effect  of  war  on  investment, 
6 

Evidence  before  Railroad  Commis- 
sion, 163,  164 

Exemplary  damages,  165 

Farming  prosperity,  effect  of  re- 
moteness on,  50 

Federal  and  British  Constitutions,  98 

Fictitious  capital,  39,  40 

Fink,  Mr.,  Commissioner,  55 

Fisk,  Mr.  James  Jr.,  84 

Fixed  charges,  effect  of,  their  bene- 
fits and  drawbacks,  74,  78 

Fixed  charges,  relation  of  to  rates, 

53 
Floating  debt,  incidents  of,   78,   79, 

,87 
Foreclosure,    difficulties  incident  to 

when  road  in  bad  condition,  77 
Future  legislation,  158 

Geographical  direction  of  railroads, 
130-141  ;  due  east-and-west  lines, 
131-133  ;  tonnage  fluctuations  of, 
131  ;  capital,  real  and  fictitious 
interest  on,  132,  133  ;  danger  to 
weak  lines  from  competition  based 
on  modern  principles,  133,  134 

Ghost  trains,  40 

Gladstone,  Mr.,  4,  5,  26 

Government  management,  compara- 
tive efficiency  of,  103,  104 


Government  subsidy  in  form  of  land, 

30 

Granger  cases,  108,  150,  151 
Granger    opinions   and    grievances, 

52,  53,  128 
Grazing  lands,  ownership  of,   122  ; 

privileges  attaching  thereto,  122  ; 

use  and  abuse  of,  122 
Great  Britain,  landlords  and  tenants, 

6 

Hadley,  Prof.  A.T.,  Railroad  Trans- 
portation, Preface  and  125 

Hudson,  James  F.,  The  Railways 
and  the  Republic,  Preface  and  126 

Income  bonds,  35 

Increment  of  value,  10  ;  earned  and 
unearned,  92,  93 

Inflation,  9,  30 

Interchange  of  special  commodities, 
advantages  accruing  to  railroads 
from,  135 

Interest  of  public  and  railroads  re- 
lation between,  46,  47 

Inter-State  commerce,  88,  161-163 

Ireland,  withdrawal  of  capital  from, 
4-6 

Iron-masters  of  Northern  and  Mid- 
dle States,  139 

Jurisdiction  of  Federal  Courts,  142, 
143 

Land-grants  to  railroads,  117,  118  ; 
ample  consideration  paid  for  by 
foreign  investors  117-120  ;  policy 
of  U.  S.  Government  relating  to, 
117-119  ;  grant  of  alternate  sec- 
tions advantageous  to  Govern- 
ment, 119 

Laws  of  supply  and  demand,  opera- 
tion and  regulation  of,  94,  95 

Leading  subjects,  list  of,  12,  13 

Leased  lines,  real  value  of,  38,  39  ; 
earning  power  of,  39  ;  hasty  adop- 
tion of,  39 

Liabilities  arising  from  strikes,  102, 
103,  152-154 

Maine,  Sir  Henry  S.,  19 
Manipulation  of  price  of  stock,  33-38 


t.VDEX. 


223 


Mineral  trade  of  the  South,  advance 
of,  138,  139  ;  Birmingham,  Ala- 
bama, 139 

Monetary  contraction,  incidents  of, 
21 

New  acquisitions  and   additions  to 

mileage,  8q 

New  railroads  in  remote  States,  120 
New  York  Central  R.  R.  system,  57 
New  York  Railway  Age,  152 
Novation  of  charter,  157 

Opposition  to  new  railroads,  61 
Organs,   railroad,    34-38  ;   elasticity 
of  illustrated,  34-37 

Paper  and  cash,  79 

Patronage,     relation  of  to  invested 

capital,  42,  43 
Police   power  of  States  to  regulate, 

150,  151 
Pools,  necessity  of   an  indication  of 

weakness,  55 
Popular  aspirations  in    respect    of 

railroad  reform,  95,  96 
Position  of  native  capitalists  as  com- 
pared with  foreign,  75 
Power  of  State  to  assume  railroads, 

101  ;   terms  of  in  Massachusetts, 

167,  168 
Powers  reserved  to  States  to  modify 

charters,  151 
Proxies,    70  ;  their  use   and   abuse, 

72,  73 
Public  advantage  the  consideration 

for  charters,  145,  146 
Publicity  official  reports  intervals  of, 

87,     88 ;      quarterly     statements, 

87,  88 

Railroad  and  ordnance  maps,  66,  67 
Railroad  situation,  recurring  changes 

in,  n,  12 
Ransom,  26 

Ready  money  in  reorganization,  68 
Rebates,  158 
Receiver's  certificates,   issue  of  81, 

82  ;      employment    of     proceeds, 

81,  82 

Receivers,  compensation  of,  67 
Recuperative  power,  no 


Regulation  of  railroad  accounts,  88 

Removal  from  State  to  Federal 
Courts  of  suits  by  and  against 
aliens,  143-145 

Reorganization,  incidents  of,  64 ; 
value  to  new  company  of  the  les- 
sons of  their  predecessors'  experi- 
ence, 65 

Responsibility  in  management,  ef- 
fect of,  47 

Responsibility  of  railroads  for  cor- 
rection of  traders'  mistakes,  51,52 

Restriction  on  future  acquisition  of 
large  tracts  by  aliens,  123 

Right  of  way,  61 

Rings,  resistance  to,  22 

Securities,  prior  and  posterior,  and 
their  ownership,  74 j  undue  in- 
crease of  posterior,  74 

Shipments,  wholesale  and  retail,  85, 
86  ;  constant  and  spasmodic,  85, 
86 

Shorts,  34 

Solid  voting,  decline  of,  22 

Southern  products,  134,  135 

Sovereignty  of  State,  111-116,  152  ; 
defences  available  to,  ill,  112  ; 
non  possumus,  in  j  legislative 
obstruction,  112  ;  hook-and-eye 
bills,  112-116  ;  Virginia  coupon 
cases,  115,  116,  152 

Stability   of   rates,    importance    of, 

54,  55 

State  and  Confederate  bonds,  122 

State  cannot  become  collecting 
agent  for  citizens,  150 

State  charters  compared  with  Eng- 
lish Railway  Acts,  60-62 

State  control,  124-129  ;  France, 
126  ;  Prussia,  126  ;  Belgium,  126  ; 
England,  126,  127  ;  regarded  po- 
litically, 128  ;  economically,  128, 
129 

State  legislation,  elasticity  of,  9.1-95  ; 
Georgia  R.  R.  Commission,  91, 
157-167  ;  Massachusetts  R.  R. 
Commission,  91,  138,  167,  168 

State,  transfer  of  directorial  func- 
tions to,  99-107 

Steel  rails,  36 

Syndicates,  80 


INDEX. 


Tapping,  30,  67 

Terminal  facilities,  36 

Tweed's  Ring,  22,  70,  71,  136,  137 

Unloading  on  foreign  investor,  37 
Water,  legal  restraint  on,    56  ;    its 


effect  overlooked  by  foreign  inves- 
tor, 58  ;  interest  on  unlikely  to  be 
permanent,  59 

Water  transportation,  effect  of,  135 

West  Shore  R.  R.,  57 

Working  hours,  legislative  restric- 
tion of,  15,  16 


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